Journal
REVIEW OF ECONOMICS AND STATISTICS
Volume 99, Issue 1, Pages 135-150Publisher
MIT PRESS
DOI: 10.1162/REST_a_00593
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Funding
- ESRC [ES/I031626/1]
- ESRC [ES/I031626/1] Funding Source: UKRI
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This paper studies the relationship between public debt expansion and economic growth and investigates whether the debt-growth relation varies with the level of indebtedness. We contribute theoretically by developing tests for threshold effects in the context of dynamic heterogeneous panel data models with cross-sectionally dependent errors. In the empirical application, using data on a sample of forty countries over the 1965-2010 period, we find no evidence for a universally applicable threshold effect in the relationship between public debt and economic growth. Regardless of the threshold, however, we find significant negative effects of public debt buildup on output growth.
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