IMF Working Papers

This Time They Are Different : Heterogeneity and Nonlinearity in the Relationship Between Debt and Growth

Author/Editor:

Markus Eberhardt ; Andrea F Presbitero

Publication Date:

December 17, 2013

Electronic Access:

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Summary:

We study the long-run relationship between public debt and growth in a large panel of countries. Our analysis takes particular note of theoretical arguments and data considerations in modeling the debt-growth relationship as heterogeneous across countries. We investigate the issue of nonlinearities (debt thresholds) in both the cross-country and within-country dimensions, employing novel methods and diagnostics from the time-series literature adapted for use in the panel. We find some support for a nonlinear relationship between debt and long-run growth across countries, but no evidence for common debt thresholds within countries over time.

Series:

Working Paper No. 13/248

Subject:

Economic growth Economic models Nonlinearity Public debt