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Government Debt and Economic Growth:Estimating the Debt Thresholds and Debt Intolerance

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  • Vighneswara Swamy

    (Institute of Economic Growth, Delhi)

Abstract

In the context of rising government debt levels in advanced economies and the ongoing euro zone debt crisis, there has been a revival of academic and policy debate on the impact of growing government debt on economic growth. This data-rich study offers an econometric investigation of the macroeconomic determinants of government debt and answers the much-debated question –What factors influence the government debt in a sovereign country? The study provides analyses for economy groupings, political governance groupings and income groupings of countries in addition to the full sample. Panel Granger causality testing is employed to establish causality running from the determinants of debt. The results of the full sample analysis reveal that real GDP growth, foreign direct investment, government expenditure, inflation and population growth have negative effect on debt. Gross fixed capital formation, final consumption expenditure, and trade openness have positive effect on debt. The results for different country groupings bring out some interesting implications

Suggested Citation

  • Vighneswara Swamy, 2015. "Government Debt and Economic Growth:Estimating the Debt Thresholds and Debt Intolerance," IEG Working Papers 362, Institute of Economic Growth.
    • Handle: RePEc:awe:wpaper:362
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    Cited by:

    1. Wissem Khanfir, 2019. "Threshold Effect of Public Debt on Economic Growth: An Empirical Investigation for Selected North African Countries," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 3, pages 429-436, September.
    2. Wang, Wencheng & Ning, Zinan & Shu, Yang & Riti, Joshua Sunday & Riti, Miriam-Kamah J., 2023. "Natural resource rents and public debts nexus in African resource-rich and most indebted nations: Issues with aggregation bias," Resources Policy, Elsevier, vol. 82(C).
    3. İbrahim ÖZMEN, 2022. "New Evidence from Government Debt and Economic Growth in Core and Periphery European Union Countries : Asymmetric Panel Causality," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 167-187, October.
    4. Kummer-Noormamode, Sabina, 2018. "The Relationship between Public Debt and Economic Growth: Nonlinearity and Country-Specificity," MPRA Paper 98075, University Library of Munich, Germany.
    5. Dinabandhu Sethi & V. V. Subba Rao & Asit Ranjan Mohanty, 2020. "Threshold level of fiscal deficit: revisiting FRBMA limit in Indian states," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 22(2), pages 233-249, December.
    6. Ampofo, Gideon Minua Kwaku & Jinhua, Cheng & Bosah, Philip Chukwunonso & Ayimadu, Edwin Twum & Senadzo, Patrick, 2021. "Nexus between total natural resource rents and public debt in resource-rich countries:A panel data analysis," Resources Policy, Elsevier, vol. 74(C).
    7. Narayan, Laxmi, 2017. "Growth of Public Debt in Haryana – Dynamism or Misplaced Priorities," MPRA Paper 79431, University Library of Munich, Germany, revised 05 May 2017.
    8. Raymond Osi Alenoghena & Justin Amase & Adolphus Arhotomhenla Aghughu, 2022. "The Threshold Effect of Domestic Public Borrowing on the Nigerian Economy," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 6(5), pages 824-833, May.

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    More about this item

    Keywords

    Government debt; economic growth; panel data; nonlinearity; country groupings;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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