The Role of government debt on economic growth

by José Ricardo Alves

Institution: Technical University of Lisbon
Year: 2014
Keywords: government debt; economic growth; thresholds
Record ID: 1323811
Full text PDF: http://www.rcaap.pt/detail.jsp?id=oai:www.repository.utl.pt:10400.5/7220


Mestrado em Economia In our research, we study the effect of public debt on economic growth for annual and 5-year average growth rates, as well as the existence of non-linearity effects of debt on growth for 14 European countries since 1970 until 2012. We also consider debt-to-GDP ratio interactions with monetary, public finance, institutional and macroeconomic variables. We conclude that debt has a negative impact of -0.01% for each increment of 1% of public debt, although debt service has a 10 times worse effect on growth. We reach average thresholds for annual and 5-year average of 75% and 74%, respectively. Belonging to Eurozone has a detrimental effect of at least -0.5% for real per capita GDP, and banking crisis is the most harmful crisis for the growth phenomena.