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Even Worse than You thought: The Impact of Public Debt on Aggregate Investment and Productivity

  • Simone Salotti
  • Carmine Trecroci

In this paper, we empirically assess the impact of government debt on two key determinants of long-term growth, i.e., private investment and productivity, on a panel of 20 OECD economies from 1970 to 2009. Our main finding is that high public debts are followed by significant and linear declines of both aggregate investment spending and productivity growth. Our analysis also finds evidence supporting conditional convergence of productivity growth among OECD countries.

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Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c017_020.

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Length: 23 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:deg:conpap:c017_020
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  28. Ludvigson, Sydney, 1996. "The macroeconomic effects of government debt in a stochastic growth model," Journal of Monetary Economics, Elsevier, vol. 38(1), pages 25-45, August.
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