Debt and Growth: Is There a Magic Threshold?
20 Pages Posted: 11 Mar 2014
Date Written: February 2014
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.
Keywords: Public debt, Economic growth, Economic models, Sovereign debt, gdp growth, debt thresholds, debt ratio, growth rate, growth rates, real gdp, government debt, debt overhangs, debt data, debt ratios, debt dynamics, low debt, reserve bank, public sector debt, currency debt, debt database, stock of debt, debt management, foreign currency debt, gdp growth rate
JEL Classification: H63, O40
Suggested Citation: Suggested Citation