Public debt heterogeneity at country level: an empirical analysis

Nowadays, the increase in public debt is affecting economies around the world reaching unprecedented values. In light of that, this paper investigates the effects of taxes and public spending as debt deflators. Moreover, it compares how a boost in inflation with respect to traditional instruments might help debt-to-GDP reduces. Eventually, this paper highlights the importance of the economy size as a key feature that policymakers should consider in making judgments. For these purposes, we use a fixed effects regression on a balanced panel data from 2005 to 2020 assessing how inflation, taxes, and public expenditure impact the dependent variable, namely the public debt-to-GDP ratio. Overall, we found that an increase in inflation and tax revenue entails different effects on the economic growth for both the United States, the European Union and China. Moreover, a consistent increase in public expenditure causes a decrease in the public debt-to-GDP ratio in all three nations. The divergent political stances and the evolution of the three countries create a huge heterogeneity among them and high values of heterogeneity in terms of public debt within the nations.