The Role of Government Debt in Economic Growth

Afonso, António; Alves, José

doi:10.2139/ssrn.2468805

Cited by 37 publications

(41 citation statements)

References 30 publications

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“…The inclusion of the squared variable affords us the opportunity to investigate the non-linearity effect of public debt on private investment, as well as analyzing the values of public debt thresholds. As in [37] and [38] we calculate the thresholds only when both coefficients of debt and debt squared are statistically significant. Taking the first order conditions, Equation 16 Equation 18is the debt-GDP ratio turning point or the threshold level of debt.…”

Section: Theoretical Framework and Model Specificationmentioning

confidence: 99%

Debt, Corruption and Investment in East Africa: A Panel ARDL Analysis

Aswata¹,

Nnyanzi²,

Bbale³

2018

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We set out to investigate the relationship between public debt and private investment using a panel of four countries in East Africa for the period 1992-2015. The results from the Autoregressive Distributed Lag Models show that Public Debt (PD) crowds out both Private Domestic Investment (PDI) and Foreign Direct Investment (FDI) in the long run, although the magnitude of the impact is greater for the former category. We fail to find evidence of any short run significant relationship in either case. However, the importance of institutional quality in enhancing relationship in question is unquestionably confirmed in the data. The effect of PD on either PDI or FDI is observed to change when the corruption control improves. The immediate recommendation is the need to design fiscal policies to tame the growing debt that appears to discourage private investment in the region. A proper debt management system coupled with clear policies to improve the institutional quality would likely boost private investment in East Africa. The anti-corruption measures already in place should be enhanced to create a conducive investment climate for the private sector to thrive.

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Section: Theoretical Framework and Model Specificationmentioning

confidence: 99%

Debt, Corruption and Investment in East Africa: A Panel ARDL Analysis

Aswata¹,

Nnyanzi²,

Bbale³

2018

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“…They found a negative effect of the debt-to-GDP to economic growth and that financial crisis is detrimental for growth, while fiscal consolidation promotes growth. Afonso and Alves (2015) use a panel of 14 European countries to assess the links between growth, productivity and government debt. They found a negative effect of the debt-to-GDP to economic growth −0.04 and −0.03 and that financial crisis is detrimental for growth, while fiscal consolidation promotes growth.…”

Section: Introductionmentioning

confidence: 99%

The Effect of Government Debt and Other Determinants on Economic Growth: The Greek Experience

Pegkas

2018

Economies

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This study empirically investigates the relationship between economic growth and several factors (investment, private and government consumption, trade openness, population growth and government debt) in Greece, where imbalances persist several years after the financial crisis. The results reveal a long-run relationship between variables. Investment as private and government consumption and trade openness affect positively growth. On the other hand, there is a negative long-run effect of government debt and population growth on growth. Furthermore, the study addresses the issue of break effects between government debt and economic growth. The results indicate that the relationship between debt and growth depends on the debt breaks. Specifically, at debt levels before 2000, increases in the government debt-to-GDP ratio are associated with insignificant effects on economic growth. However, as government debt rises after 2000, the effect on economic growth diminishes rapidly and the growth impacts become negative. The challenge for policy makers in Greece is to halt the rising of government debt by keeping a sustainable growth path. Fiscal discipline should be combined with the implementation of coherent, consistent and sequential growth-enhancing structural reforms.

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“…3 For additional articles on the effect of public debt on growth, see Reinhart and Rogoff (2010), Jalles (2013), or Baum, Checherita-Westphal, andRother (2013). Afonso and Alves (2015) also focus on non-linear effects of debt on economic growth and provide government debt threshold values. 4 As a robustness check, we also used a 20% of GDP debt accumulation threshold.…”

Section: Discussionmentioning

confidence: 99%

Debt spikes, blind spots, and financial stress

2017

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Are blind spots of public debt spikes sizable? And how do they affect financial stress indicators? This paper tackles these questions empirically, using information from 179 episodes of public debt spikes between 1945 and 2014. We find that large public debt spikes are neither driven by high primary deficits nor by output declines but instead by stock-flow adjustments. These blind spots in debt dynamics are sizable in both advanced economies and emerging markets and could amount to more than 20% of gross domestic product in the median episode. These public debt spikes increase financial stress indicators significantly, in particular when a large share of public debt is held by domestic commercial banks. Enhanced transparency and better debt forecasting tools could help address financial market tensions resulting from blind spots in debt dynamics.

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The Role of Government Debt in Economic Growth

Cited by 37 publications

References 30 publications

Debt, Corruption and Investment in East Africa: A Panel ARDL Analysis

Debt, Corruption and Investment in East Africa: A Panel ARDL Analysis

The Effect of Government Debt and Other Determinants on Economic Growth: The Greek Experience

Debt spikes, blind spots, and financial stress

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