An empirical characterization of the effects of public debt on economic growth

ABSTRACT

Based on a data set of 115 economies, this article empirically investigates the relation between public debt and economic growth. Using the World Bank’s classification for income groups, we initially find that those countries that present the lowest public debt are characterized by the highest economic growth, while the smallest growth rates are associated with the highest public debt. Nevertheless, this conclusion is tempered when we analyse the countries by income level: low-income countries have a different behaviour with respect to lower-middle, upper-middle and high-income countries. When using the IMF’s country classification, the results do not suggest a clear pattern in the public debt–economic growth nexus across different countries, but indicate a heterogeneous relationship between such key macroeconomic variables.

KEYWORDS:

• Public debt
• economic growth

JEL CLASSIFICATION:

• C32
• H63
• O40
• O57

Acknowledgements

The authors thank the insightful comments of two anonymous referees and the editor that have helped to substantially improve this article. Simón Sosvilla-Rivero also thanks the hospitality provided by the Department of Economics during a research visit at the University of Bath. Responsibility for any remaining errors rests with the authors.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ The threshold used by them for public debt in advanced and emerging economies is similar.

² These breakpoints are identified endogenously.

Additional information

Funding

This work is supported by the Spanish Ministry of Education, Culture and Sport, through the Subprograma Estatal de Movilidad del Plan Estatal de Investigación Científica y Técnica y de Innovación 2013- 2016 [Grant PRX16/00261].