Public Debt, Economic Growth and Nonlinear Effects: Myth or Reality?
The economics profession seems to increasingly endorse the existence of a strongly negative nonlinear effect of public debt on economic growth. Reinhart and Rogoff (2010) were the first to point out that a public debt-to-GDP ratio higher than 90% of GDP is associated with considerably lower economic...
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| Main Author: | |
|---|---|
| Format: | Electronic eBook |
| Language: | English |
| Published: |
Paris
OECD Publishing
2012
|
| Series: | OECD Economics Department Working Papers
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| Subjects: | |
| Online Access: | Volltext |
| Summary: | The economics profession seems to increasingly endorse the existence of a strongly negative nonlinear effect of public debt on economic growth. Reinhart and Rogoff (2010) were the first to point out that a public debt-to-GDP ratio higher than 90% of GDP is associated with considerably lower economic performance in advanced and emerging economies alike. A string of recent empirical papers broadly validates this threshold value. This paper seeks to contribute to this literature by putting a variant of the Reinhart-Rogoff dataset to a formal econometric testing. Using nonlinear threshold models, there is some evidence in favour of a negative nonlinear relationship between debt and growth. But these results are very sensitive to the time dimension and country coverage considered, data frequency (annual data vs. multi-year averages) and assumptions on the minimum number of observations required in each nonlinear regime. We show that when non-linearity is detected, the negative nonlinear effect kicks in at much lower levels of public debt (between 20% and 60% of GDP). These results, based on bivariate regressions on secular time series, are largely confirmed on a shorter dataset (1960-2010) when using a multivariate growth framework that accounts for traditional drivers of long-term economic growth and model uncertainty. Nonlinear effects might be more complex and difficult to model than previously thought. Instability might be a result of nonlinear effects changing over time, across countries and economic conditions. Further research is certainly needed to fully understand the link between public debt and growth |
| Physical Description: | 1 Online-Ressource (34 Seiten) 21 x 29.7cm |
| DOI: | 10.1787/5k918xk8d4zn-en |
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| spelling | Égert, Balázs Verfasser aut Public Debt, Economic Growth and Nonlinear Effects Myth or Reality? Balázs Égert = Dette publique, croissance économique et effets non-linéaires : mythe ou réalité ? / Balázs Égert Dette publique, croissance économique et effets non-linéaires Paris OECD Publishing 2012 1 Online-Ressource (34 Seiten) 21 x 29.7cm txt rdacontent c rdamedia cr rdacarrier OECD Economics Department Working Papers The economics profession seems to increasingly endorse the existence of a strongly negative nonlinear effect of public debt on economic growth. Reinhart and Rogoff (2010) were the first to point out that a public debt-to-GDP ratio higher than 90% of GDP is associated with considerably lower economic performance in advanced and emerging economies alike. A string of recent empirical papers broadly validates this threshold value. This paper seeks to contribute to this literature by putting a variant of the Reinhart-Rogoff dataset to a formal econometric testing. Using nonlinear threshold models, there is some evidence in favour of a negative nonlinear relationship between debt and growth. But these results are very sensitive to the time dimension and country coverage considered, data frequency (annual data vs. multi-year averages) and assumptions on the minimum number of observations required in each nonlinear regime. We show that when non-linearity is detected, the negative nonlinear effect kicks in at much lower levels of public debt (between 20% and 60% of GDP). These results, based on bivariate regressions on secular time series, are largely confirmed on a shorter dataset (1960-2010) when using a multivariate growth framework that accounts for traditional drivers of long-term economic growth and model uncertainty. Nonlinear effects might be more complex and difficult to model than previously thought. Instability might be a result of nonlinear effects changing over time, across countries and economic conditions. Further research is certainly needed to fully understand the link between public debt and growth Economics https://doi.org/10.1787/5k918xk8d4zn-en Verlag kostenfrei Volltext |
| spellingShingle | Égert, Balázs Public Debt, Economic Growth and Nonlinear Effects Myth or Reality? Economics |
| title | Public Debt, Economic Growth and Nonlinear Effects Myth or Reality? |
| title_alt | Dette publique, croissance économique et effets non-linéaires |
| title_auth | Public Debt, Economic Growth and Nonlinear Effects Myth or Reality? |
| title_exact_search | Public Debt, Economic Growth and Nonlinear Effects Myth or Reality? |
| title_exact_search_txtP | Public Debt, Economic Growth and Nonlinear Effects Myth or Reality? |
| title_full | Public Debt, Economic Growth and Nonlinear Effects Myth or Reality? Balázs Égert = Dette publique, croissance économique et effets non-linéaires : mythe ou réalité ? / Balázs Égert |
| title_fullStr | Public Debt, Economic Growth and Nonlinear Effects Myth or Reality? Balázs Égert = Dette publique, croissance économique et effets non-linéaires : mythe ou réalité ? / Balázs Égert |
| title_full_unstemmed | Public Debt, Economic Growth and Nonlinear Effects Myth or Reality? Balázs Égert = Dette publique, croissance économique et effets non-linéaires : mythe ou réalité ? / Balázs Égert |
| title_short | Public Debt, Economic Growth and Nonlinear Effects |
| title_sort | public debt economic growth and nonlinear effects myth or reality |
| title_sub | Myth or Reality? |
| topic | Economics |
| topic_facet | Economics |
| url | https://doi.org/10.1787/5k918xk8d4zn-en |
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