The Impact of Government Debt, Expenditure and Taxes on Aggregate Investment and Productivity Growth

Salotti, Simone; Trecroci, Carmine

doi:10.1111/ecca.12175

Cited by 30 publications

(17 citation statements)

References 70 publications

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“…Overall, the theoretical literature finds that there is cause to take into account the effects of very high debt on capital stock and growth, since it tends to point to a negative link between the public debt-to-Gross Domestic Product (GDP) ratio and the steady-state growth rate of GDP (see, for instance, Aizenman et al, 2007). The conventional view is that while debt can stimulate aggregate demand and output in the short run [see Barro (1990) or Elmendorf and Mankiw (1999)], in the long run it may crowd out capital and reduce output (Salotti and Trecroci, 2016). Moreover, the literature provides a variety of reasons to explain why the higher the level of public debt, the more negative its effects.…”

Section: Introductionmentioning

confidence: 99%

Heterogeneity in the debt-growth nexus: Evidence from EMU countries

Gómez‐Puig

Sosvilla‐Rivero

2017

International Review of Economics & Finance

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The objective of this paper is to examine whether the threshold beyond which a public debt change may have a detrimental effect on economic growth changes across euro area countries during the 1961-2015 period. In contrast with previous studies, we do not use panel estimation techniques, but implement a time-series analysis for each country based on the growth literature. The results suggest that in all the countries but Belgium a debt increase begins to have detrimental effects on growth well before the SGP debt ceiling (a debt ratio of around 40% and 50% in central and peripheral countries, respectively) is reached. So, although austerity policies should be applied in EMU countries-since according to our results debt reduction barely exerts any significant beneficial impact on EMU countries' growth-they should be accompanied by structural reforms that can increase their potential GDP. Moreover, as our results suggest that the harmful impact of a debt change on growth does not occur beyond the same threshold and with the same intensity in all EMU countries, a focus on average ratios and impacts may be unsuitable for defining policies. Specifically, our findings suggest that the pace of fiscal adjustment should be lower in Greece and Spain than in the other countries.

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Section: Introductionmentioning

confidence: 99%

Heterogeneity in the debt-growth nexus: Evidence from EMU countries

Gómez‐Puig

Sosvilla‐Rivero

2017

International Review of Economics & Finance

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“…It is easy to evolve a financial crisis from a crisis of confidence. Most scholars agree with their view that there is indeed a critical value between them, and the marginal economic growth effect of high debt levels is negative above this threshold [3] [4] [5] [6] [7]. However, they questioned the specific threshold of 90% in RR.…”

Section: The Literature Reviewmentioning

confidence: 95%

Economic Growth Efficiency and Productivity Constrained by Government Debts

Wu¹,

Qian²

2018

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This paper analyzes the panel data of 60 countries during the period 1990-2014. It employs non-radial and non-angled slack-based measure (SBM) method to count the economic growth efficiency and inefficiency sources under government debt constraints. The results show that traditional efficiency is usually higher than economic growth efficiency, and the latter can better reflect real economic situation. In addition, debt inefficiency is the main cause of declining economic growth efficiency in all countries, and it has the greatest impact on developing countries. Meanwhile, this paper also adopts the global reference Global-Malmquist-Luenberger (GML) index to measure total factor productivity (TFP) and further decomposes it into technological changes and efficiency changes. It is found that technological progress and efficiency improvement are the main driving forces for enhancing total factor productivity.the Keynesian thoughts have more and more important impact on governments and the scale of fiscal deficits has rapidly expanded. However, the expansion of government debt has not permanently brought about sustained economic growth. The financial crisis resulted in the bankruptcy of the three largest banks in Iceland in the same year and the total debt amount was 9 times GDP. Then it refused to repay the debts at the expense of national credit and became the first country to collapse due to debt after the financial crisis. In 2009, three major rating agencies downgraded Greece's credit rating which accelerated the process of the Greek debt crisis. This incident became the trigger for the sovereign debt crisis in the euro zone countries and the leading euro country's giant, Germany, was suffered a heavy setback. With the continuous spread of the government debt crisis, the United States, as the only super economy in the world, also contained great credit risks. The unremitting outbreak of debt crisis had aroused strong doubts about the view that government debt promotes sustainable economic development.The lessons of history and the results of a large number of academic studies tell us that the expansion of government debt can, to a certain extent, facilitate the rapid development of economy, while the continuous accumulation of government debt will crowd out private investment. What's more, the debt crisis will lead to economic and social unrest and the country will enter a stage of poor development with low growth and low productivity. Therefore, whether it is possible to continuously raise the scale of government debt without considering government debt constraints in order to seek economic development in the process of production, and the heterogeneity of economic growth will be after taking account into government debt constraints. These issues have been discussed by scholars and will be researched across the board in the paper.At present, most scholars tend to take energy and resources as constraints in the production process and seldom take into account the constraints of government debt. However, government...

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“…Salotti & Trecroci [19] investigated the impact of government debt, expenditure and taxes on aggregate investment and productivity growth in OECD for the period 1970 to 2009. The study employed the panel fixed effect estimation method as well as the generalized method of moments.…”

Section: Empirical Reviewmentioning

confidence: 99%

Budget Deficit and Economic Growth in Sub-Saharan Africa: A PMG Approach

Awolaja

Esefo

2020

AJEBA

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The relationship between budget deficit and economic growth remains one of the widely debated topics among policy makers and economists in both developed and developing countries of the world. This paper empirically investigated the long run and short run relationship between budget deficit and economic growth in sub-Saharan Africa countries from 1991 to 2018 using Panel data for twenty (20) sub-Saharan Africa Countries. The estimation technique employed in the study was the Pooled Mean Group (PMG) estimation method and the regression results revealed that in the long run, budget deficit has a negative and significant relationship with economic growth whereas in the short run, it has a positive and significant relationship with economic growth. The study concluded that government should reduce the overall recurrent expenditure as it will help to mitigate the problem of budget deficit that leads to debt accumulation in sub-Saharan Africa countries and increase expenditure on developmental projects.

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The Impact of Government Debt, Expenditure and Taxes on Aggregate Investment and Productivity Growth

Cited by 30 publications

References 70 publications

Heterogeneity in the debt-growth nexus: Evidence from EMU countries

Heterogeneity in the debt-growth nexus: Evidence from EMU countries

Economic Growth Efficiency and Productivity Constrained by Government Debts

Budget Deficit and Economic Growth in Sub-Saharan Africa: A PMG Approach

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