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A contribution to the Reinhart and Rogoff debate: not 90 percent but maybe 30 percent

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Listed:
  • Sokbae (Simon) Lee

    (Institute for Fiscal Studies and Columbia University)

  • Hyunmin Park

    (Institute for Fiscal Studies)

  • Myung Hwan Seo

    (Institute for Fiscal Studies)

  • Youngki Shin

    (Institute for Fiscal Studies)

Abstract

Using the Reinhart-Rogoff dataset, we fi nd a debt threshold not around 90 percent but around 30 percent, above which the median real GDP growth falls abruptly. Our work is the first to formally test for threshold eff ects in the relationship between public debt and median real GDP growth. The null hypothesis of no threshold eff ect is rejected at the 5 percent signi cance level for most cases. While we fi nd no evidence of a threshold around 90 percent, our fi ndings suggest that the debt threshold for economic growth may exist around a relatively small debt-to-GDP ratio of 30 percent. Empirical results are more robust with the postwar sample than the long sample that goes before World War II.

Suggested Citation

  • Sokbae (Simon) Lee & Hyunmin Park & Myung Hwan Seo & Youngki Shin, 2014. "A contribution to the Reinhart and Rogoff debate: not 90 percent but maybe 30 percent," CeMMAP working papers CWP39/14, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:cemmap:39/14
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    Cited by:

    1. Rothfelder, Mario & Boldea, Otilia, 2016. "Testing for a Threshold in Models with Endogenous Regressors," Discussion Paper 2016-029, Tilburg University, Center for Economic Research.

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