On the Relation between Public Debt and Economic Growth: An Empirical Investigation
19 Pages Posted: 3 Dec 2013
Date Written: December 3, 2013
In this paper we empirically study the relation between public debt and economic growth. We analyze how the public debt to GDP ratio at a certain point in time is correlated with the GDP growth rate in the following period, where we consider a one-year time span, a three-years time interval and a five-years interval. Using panel data comprising seven developed countries from 1970-2012, we estimate a pooled regression model and a random effects model. We find strong evidence for a significantly negative relation between debt and growth. Further, for most specifications this relationship does not seem to be characterized by non-linearities.
Keywords: Public Debt, Economic Growth, Empirics
JEL Classification: E62, H63
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