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Debt and Growth: Is There a Magic Threshold?

Author/Editor: Andrea Pescatori | Damiano Sandri | John Simon
Authorized for Distribution: February 13, 2014
Electronic Access: Free Full Text (PDF file size is 691KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: Using a novel empirical approach and an extensive dataset developed by the Fiscal Affairs Department of the IMF, we find no evidence of any particular debt threshold above which medium-term growth prospects are dramatically compromised. Furthermore, we find the debt trajectory can be as important as the debt level in understanding future growth prospects, since countries with high but declining debt appear to grow equally as fast as countries with lower debt. Notwithstanding this, we find some evidence that higher debt is associated with a higher degree of output volatility.
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Series: Working Paper No. 14/34
Subject(s): Public debt | Economic growth | Economic models
    Published:   February 13, 2014        
    ISBN/ISSN:   9781484306444/1018-5941   Format:   Paper
    Stock No:   WPIEA2014034   Pages:   19
    Price:   US$18.00
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