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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.

Suggested Citation

  • Simone Salotti & Carmine Trecroci, 2012. "Even Worse than You thought: The Impact of Public Debt on Aggregate Investment and Productivity," DEGIT Conference Papers c017_020, DEGIT, Dynamics, Economic Growth, and International Trade.
  • Handle: RePEc:deg:conpap:c017_020

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    Cited by:

    1. Balazs Egert, 2017. "Regulation, Institutions and Aggregate Investment: New Evidence from OECD Countries," CESifo Working Paper Series 6415, CESifo Group Munich.
    2. Juhana Hukkinen & Matti Viren, 2013. "Public debt is always toxic to economic growth," Discussion Papers 88, Aboa Centre for Economics.
    3. Don Drummond & Evan Capeluck & Matthew Calver, 2015. "The Key Challenge for Canadian Public Policy: Generating Inclusive and Sustainable Economic Growth," CSLS Research Reports 2015-11, Centre for the Study of Living Standards.

    More about this item


    government debt; economic growth; investment; productivity;

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy


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