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

Listed author(s):
  • 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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File URL: http://degit.sam.sdu.dk/papers/degit_17/C017_020.pdf
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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
Handle: RePEc:deg:conpap:c017_020
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  8. Reinhart, Carmen, 2009. "The Second Great Contraction," MPRA Paper 21485, University Library of Munich, Germany.
  9. Sutherland, Alan, 1997. "Fiscal crises and aggregate demand: can high public debt reverse the effects of fiscal policy?," Journal of Public Economics, Elsevier, vol. 65(2), pages 147-162, August.
  10. Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers 130, University of Rochester - Center for Economic Research (RCER).
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  14. Muscatelli, V. Anton & Tirelli, Patrizio & Trecroci, Carmine, 2004. "Fiscal and monetary policy interactions: Empirical evidence and optimal policy using a structural New-Keynesian model," Journal of Macroeconomics, Elsevier, vol. 26(2), pages 257-280, June.
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  17. António Afonso & João Tovar Jalles, 2011. "Growth and Productivity: the role of Government Debt," Working Papers Department of Economics 2011/13, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  18. Stephen Cecchetti & Madhusudan Mohanty & Fabrizio Zampolli, 2010. "The future of public debt: prospects and implications," BIS Working Papers 300, Bank for International Settlements.
  19. Margarita Katsimi & Vassilis Sarantides, 2012. "The Impact Of Fiscal Policy On Profits," Economic Inquiry, Western Economic Association International, vol. 50(4), pages 1050-1068, October.
  20. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
  21. Johannes Van Biesebroeck, 2009. "Disaggregate productivity comparisons: sectoral convergence in OECD countries," Journal of Productivity Analysis, Springer, vol. 32(2), pages 63-79, October.
  22. Alesina, Alberto F & Ardagna, Silvia & Perotti, Roberto & Schiantarelli, Fabio, 1999. "Fiscal Policy, Profits and Investment," CEPR Discussion Papers 2250, C.E.P.R. Discussion Papers.
  23. Reinhart, Karmen & Rogoff, Kenneth, 2009. ""This time is different": panorama of eight centuries of financial crises," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 77-114, March.
  24. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
  25. Mas, Matilde & Milana, Carlo & Serrano, Lorenzo, 2008. "Spain and Italy: Catching up and falling behind. Two different tales of productivity slowdown," MPRA Paper 15834, University Library of Munich, Germany, revised 2008.
  26. 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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  34. Checherita-Westphal, Cristina & Rother, Philipp, 2010. "The impact of high and growing government debt on economic growth: an empirical investigation for the euro area," Working Paper Series 1237, European Central Bank.
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