Public Debt and Growth
35 Pages Posted: 15 Oct 2015
Date Written: October 2015
The recent global financial crisis has led to an unprecedented increase in public debt across the world, raising serious concerns about its economic impact. This paper examines the impact of high public debt on long‐run economic growth in a large panel of countries over the last four decades. High initial public debt is found to be significantly associated with slower subsequent growth. Non‐linearities, currency denomination of debt and differences between advanced and emerging market economies are explored. The adverse effect largely reflects a slowdown in labour productivity growth mainly due to slower capital accumulation. Extensive robustness checks confirm the results.
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