Does high public debt consistently stifle economic growth? A critique of Reinhart and Rogoff

Abstract

We replicate Rogoff (2010a and2010b) and find that coding errors, selective exclusion of available data, and unconventional weighting of summary statistics lead to serious errors that inaccurately represent the relationship between public debt and GDP growth among 20 advanced economies in the post-war period. Our finding is that when properly calculated, the average real GDP growth rate for countries carrying a public-debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not −0.1 percent as published in Reinhart and Rogoff. That is, contrary to RR, average GDP growth at public debt/GDP ratios over 90 percent is not dramatically different than when debt/GDP ratios are lower.We also show how the relationship between public debt and GDP growth varies significantly by time period and country. Overall, the evidence we review contradicts Reinhart and Rogoff's claim to have identified an important stylized fact, that public debt loads greater than 90 percent of GDP consistently reduce GDP growth.

Stylised fact or situated messiness? The diverse effects of increasing debt on national economic growth

“…The second part addresses the issue of reverse causality, and considers how that might itself vary between countries. In both cases, we used Reinhart and Rogoff's data, made available by Herndon et al (2013).…”

“…The second set of comments was initiated in spring 2013 with the publication of a working paper from the Political Economy Research Institute at the University of MassachusettsAmherst (Herndon, et al, 2013). As a graduate student, Herndon undertook an assignment to repeat the analyses of a key paper -in his case Reinhart and Rogoff's -and found that he could not replicate their findings with the dataset used in the publications referred to above.…”

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AbstractThis paper reanalyses data used by Reinhart and Rogoff (2010c -RR), and later Herndon et al (2013) to consider the relationship between growth and debt in developed countries. The consistency over countries and the causal direction of RR's so called 'stylised fact' is considered.

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Public debt and economic growth – economic systems matter

“…While their analysis has been heavily criticized, e.g. by Herndon et al (2014), their findings nonetheless sparked an intense debate about the growth effects of high public debt levels and possible non-linearity. Several authors tried to validate Reinhart and Rogoff's (2010) findings via growth regressions (e.g.…”

Arithmetic of influence of debt crisis on economies of Visegrad Group and challenges ahead

“…See e.g. [Herndon, Ash, Pollin 2013;Krugman 2013]. 4 It is important to add that a critical threshold for debt level depends on an individual position of a particular country including such factors as the share of foreign debt in total debt, the average maturity of debt, the value of the assets held by general government, country's demographic structure, but also on the phase of the business cycle and the risk aversion of investors.…”