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Is High Public Debt Always Harmful to Economic Growth? Reinhart and Rogoff and some complex nonlinearities

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  • Alexandru Minea

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)

  • Antoine Parent

    (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique)

Abstract

In their already-famous 2010 article "Growth-in-a-Time-of-Debt" (AER-100(2)-pp.-573-78), Carmen Reinhart and Kenneth Rogoff show that average post-WW2 economic growth is dramatically declining in advanced economies, once the debt-to-GDP ratio is above a 90% threshold. We explore the relevance of this exogenous threshold using up-to-date econometric techniques, and reveal an endogenously-estimated threshold around a debt-to-GDP ratio of 115%, above which the negative debt-growth link changes sign. Consequently, additional evidence is needed before suggesting policy recommendations regarding growth effects of fiscal policy in such high debt regimes, which may be subject to complex nonlinearities.

Suggested Citation

  • Alexandru Minea & Antoine Parent, 2012. "Is High Public Debt Always Harmful to Economic Growth? Reinhart and Rogoff and some complex nonlinearities," CERDI Working papers halshs-00700471, HAL.
    • Handle: RePEc:hal:cdiwps:halshs-00700471
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00700471
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    1. González, Andrés & Teräsvirta, Timo & van Dijk, Dick & Yang, Yukai, 2005. "Panel Smooth Transition Regression Models," SSE/EFI Working Paper Series in Economics and Finance 604, Stockholm School of Economics, revised 11 Oct 2017.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-578, May.
    3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    4. International Monetary Fund, 2010. "A Historical Public Debt Database," IMF Working Papers 2010/245, International Monetary Fund.
    5. Antoine Parent, 2012. "A critical note on "This time is different"," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 6(2), pages 211-219, May.
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    More about this item

    Keywords

    public debt; economic growth; nonlinear effects; cliometrics;
    All these keywords.

    JEL classification:

    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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