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Do higher public debt levels reduce economic growth?

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  • Philipp Heimberger

    (Vienna Institute for International Economic Studies)

Abstract

While the effect of higher public debt levels on economic growth has received much attention, the literature partly points to contradictory results. This paper applies meta-regression methods to 826 estimates from 48 primary studies. The unweighted mean of the reported results suggests: a 10 percentage points increase in public-debt-to-GDP is associated with a decline in annual growth rates by 0.14 percentage points, with a 95% confidence interval from 0.10 to 0.18 percentage points. However, we cannot reject a zero effect after correcting for publication bias. Furthermore, the meta-regression analysis shows that tackling endogeneity between public debt and growth makes estimates lean less towards the negative side. In testing for non-linear effects, our results do not point to a universal public-debt-to-GDP threshold beyond which growth slows: threshold estimates are sensitive to data and econometric choices. These findings imply a lack of evidence of a consistently negative growth effect of higher public-debt-to-GDP.

Suggested Citation

  • Philipp Heimberger, 2021. "Do higher public debt levels reduce economic growth?," FMM Working Paper 74-2021, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:fmmpap:74-2021
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    2. Lilian Rolim & Laura Carvalho & Dany Lang, 2023. "Monetary policy rules and the inequality-augmented Phillips Curve," Working Papers, Department of Economics 2023_06, University of São Paulo (FEA-USP).

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    More about this item

    Keywords

    Public debt; economic growth; meta-analysis;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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