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Debt and Growth: Is There a Magic Threshold?

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  • Mr. Andrea Pescatori
  • Mr. Damiano Sandri
  • John Simon

Abstract

Using a novel empirical approach and an extensive dataset developed by the Fiscal Affairs Department of the IMF, we find no evidence of any particular debt threshold above which medium-term growth prospects are dramatically compromised. Furthermore, we find the debt trajectory can be as important as the debt level in understanding future growth prospects, since countries with high but declining debt appear to grow equally as fast as countries with lower debt. Notwithstanding this, we find some evidence that higher debt is associated with a higher degree of output volatility.

Suggested Citation

  • Mr. Andrea Pescatori & Mr. Damiano Sandri & John Simon, 2014. "Debt and Growth: Is There a Magic Threshold?," IMF Working Papers 2014/034, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2014/034
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=41352
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    References listed on IDEAS

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    1. International Monetary Fund, 2010. "A Historical Public Debt Database," IMF Working Papers 2010/245, International Monetary Fund.
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