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ABSTRACT
This paper examines government debt’s effect on economic growth on a sample of 16 countries from Central and Southeast Europe for the period 2009–2018 period. We develop a non-linear dynamic panel-regression model. The findings point out to concavity of the growth function with respect to government debt. The estimates from the baseline model determine the debt threshold at the level of 77.3% of GDP, while the debt threshold ranges from 69.4 to 74.1% of GDP when the primary and overall budget balances are included as covariates. The GMM estimates that we make to deal with potential endogeneity determine the debt threshold at the level of 78.9% of GDP when there are no covariates, while the debt threshold ranges from 75.8 to 80.7% of GDP when the gross fixed capital formation and employment are added as covariates.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1. The critical reception of the paper in the economic circles was, however, marked by i) methodological flaws and estimation errors (Herndon et al., Citation2013; Maziarz, Citation2017), ii) inconsistency of data combined across different times, countries and economic categories (Jones et al., Citation2013; Wray, Citation2013;; Bell et al., Citation2015) and iii) endogeneity of the debt variable (Bell et al., Citation2015). Reinhart et al. (Citation2012) have re-run the analysis with updated data to confirm the previous finding that emphasises the importance of the debt threshold of 90% of GDP.
2. Sampled countries include Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Czechia, Estonia, Hungary, Latvia, Lithuania, Macedonia, Montenegro, Poland, Romania, Serbia, Slovakia and Slovenia.