Public debt and economic growth: is there a causal effect?

Panizza, Ugo ; Presbitero, Andrea F.

In: Journal of macroeconomics 41(2014), p. [21]-[41]

Abstract: This paper uses an instrumental variable approach to study whether public debt has a causal effect on economic growth in a sample of OECD countries. The results are consistent with the existing literature that has found a negative correlation between debt and growth. However, the link between debt and growth disappears once we correct for endogeneity.We conduct a battery of robustness tests and show that our results are not affected by weak instrument problems and are robust to relaxing our exclusion restriction. Our finding that there is no evidence that public debt has a causal effect on economic growth is important in the light of the fact that the negative correlation between debt and growth is sometimes used to justify policies that assume that debt has a negative causal effect on economic growth.

The record appears in these collections:
Academic Departments > International Economics Department
Research Clusters > Development Policies and Practices
Research Clusters > Culture, Identity and Religion
Research Clusters > Trade and Economic Integration
Research Clusters > Finance and Development
Research Clusters > Governance
Journal Articles

 Record created 2015-03-18, last modified 2017-10-24

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