{
  "title": "Is There a Debt-threshold Effect on Output Growth?",
  "publication": "IMF Working Papers, September 8, 2015",
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  "summary": "This paper studies the long-run impact of public debt expansion on economic growth and investigates whether the debt-growth relation varies with the level of indebtedness. Our contribution is both theoretical and empirical.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- This paper studies the long-run impact of public debt expansion on economic growth and investigates whether the debt-growth relation varies with the level of indebtedness.\n- Contribution is both theoretical and empirical.\n- Using data on a sample of 40 countries (grouped into advanced and developing) over the 1965- 2010 period, the authors find:\n  - No evidence for a universally applicable threshold effect in the relationship between public debt and economic growth once the impact of global factors and their spillover effects are accounted for.\n  - Regardless of the threshold, significant negative long-run effects of public debt build-up on output growth.\n  - Provided that public debt is on a downward trajectory, a country with a high level of debt can grow just as fast as its peers in the long run."
    },
    {
      "heading": "Theoretical contribution",
      "content": "- Develop tests for threshold effects in the context of dynamic heterogeneous panel data models with cross-sectionally dependent errors.\n- Illustrate via Monte Carlo experiments that the proposed tests perform well in small samples."
    },
    {
      "heading": "Empirical findings",
      "content": "- Sample: 40 countries (grouped into advanced and developing).\n- Time coverage: 1965- 2010 period.\n- Key empirical results:\n  - No universally applicable debt threshold affecting output growth after controlling for global factors and spillovers.\n  - Significant negative long-run effects of public debt accumulation on output growth irrespective of threshold specification.\n  - Evidence that a downward trajectory of public debt allows high-debt countries to achieve long-run growth comparable to peers."
    },
    {
      "heading": "Policy implications and interpretation",
      "content": "- Public debt build-up has materially negative long-run effects on output growth.\n- Debt trajectory matters: reducing public debt can enable convergence in long-run growth rates with lower-debt peers.\n- Accounting for global factors and spillover effects is crucial when assessing debt-growth relationships and searching for threshold effects.\n\n---\n\n Content in this bundle\n\n- Wp15197\n  - Wp15197 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Wp15197 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/is-there-a-debt-threshold-effect-on-output-growth-43260"
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    "Authors: Alexander Chudik, Kamiar Mohaddes, M. Hashem Pesaran, Mehdi Raissi",
    "Published: September 8, 2015",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513513355.001",
    "This paper studies the long-run impact of public debt expansion on economic growth and investigates whether the debt-growth relation varies with the level of indebtedness.",
    "Contribution is both theoretical and empirical.",
    "Using data on a sample of 40 countries (grouped into advanced and developing) over the 1965- 2010 period, the authors find:",
    "Develop tests for threshold effects in the context of dynamic heterogeneous panel data models with cross-sectionally dependent errors.",
    "Illustrate via Monte Carlo experiments that the proposed tests perform well in small samples.",
    "Sample: 40 countries (grouped into advanced and developing).",
    "Time coverage: 1965- 2010 period.",
    "Key empirical results:",
    "Public debt build-up has materially negative long-run effects on output growth.",
    "Debt trajectory matters: reducing public debt can enable convergence in long-run growth rates with lower-debt peers.",
    "Accounting for global factors and spillover effects is crucial when assessing debt-growth relationships and searching for threshold effects.",
    "**Wp15197**"
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