Jump to ContentJump to Main Navigation
Show Summary Details
More options …

Studies in Nonlinear Dynamics & Econometrics

Ed. by Mizrach, Bruce

5 Issues per year

IMPACT FACTOR 2017: 0.855

CiteScore 2017: 0.76

SCImago Journal Rank (SJR) 2017: 0.668
Source Normalized Impact per Paper (SNIP) 2017: 0.894

Mathematical Citation Quotient (MCQ) 2017: 0.02

See all formats and pricing
More options …
Volume 22, Issue 1


Public debt and economic growth conundrum: nonlinearity and inter-temporal relationship

Vladimir ArčabićORCID iD: http://orcid.org/0000-0003-4173-8637 / Josip Tica
  • University of Zagreb, Department of Macroeconomics and Economic Development, Faculty of Economics and Business, Zagreb, Croatia
  • Other articles by this author:
  • De Gruyter OnlineGoogle Scholar
/ Junsoo Lee
  • Department of Economics, Finance, and Legal Studies, University of Alabama, Tuscaloosa, AL, USA
  • Other articles by this author:
  • De Gruyter OnlineGoogle Scholar
/ Robert J. Sonora
Published Online: 2018-02-13 | DOI: https://doi.org/10.1515/snde-2016-0086


The influential paper by Reinhart and Rogoff (Reinhart, C. M., and K. S. Rogoff. 2010. “Growth in a Time of Debt.” The American Economic Review 100: 573–578.) has triggered a debate about the effects of the public debt on GDP growth. They argue that a debt-to-GDP ratio of over 90 percent has a deleterious effect on long-run economic growth. In this paper, we examine the inter-temporal relationship between public debt and GDP growth rates. We examine debt-to-GDP thresholds in nonlinear panel models, using various econometric strategies, methodologies, and data samples. We also evaluate confidence intervals around the estimated thresholds to determine the accuracy of estimated thresholds. Our results demonstrate that in the majority of estimated models, threshold values are not uniquely defined and the estimated coefficients are insignificant in most model specifications, as in Enders, Falk, and Siklos (Enders, W., B. L. Falk, and P. Siklos. 2007. “A Threshold Model of Real US GDP and the Problem of Constructing Confidence Intervals in TAR Models.” Studies in Nonlinear Dynamics & Econometrics 11: 1322.). Next, we examine the inter-temporal relationship between the public debt and economic growth using structural panel data models as well as reduced form panel VAR models. In contrast to the standard presumption in the literature, we find that the inter-temporal effect of economic growth on the public debt is strong, but the effect of the public debt on economic growth is weak. We find similar results in sub-samples that include countries where the public debt is over 90 percent of GDP.

This article offers supplementary material which is provided at the end of the article.

Keywords: economic growth; feedback effect; panel data model; public debt; threshold


  • Abbas, S. A., N. Belhocine, A. Elganainy, and M. Horton. 2010. “A Historical Public Debt Database.” IMF Working Paper, No. 10/245.Google Scholar

  • Abrigo, M. R., and I. Love. 2015. “Estimation of Panel Vector Autoregression in Stata.” The Stata Journal 16: 778–804.Google Scholar

  • Afonso, A., and J. T. Jalles. 2013. “Growth and Productivity: The Role of Government Debt.” International Review of Economics and Finance 25: 384–407.CrossrefWeb of ScienceGoogle Scholar

  • Arellano, M., and S. Bond. 1991. “Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations.” Review of Economic Studies 58: 277–297.CrossrefGoogle Scholar

  • Arellano, M., and O. Bover. 1995. “Another Look at the Instrumental Variable Estimation of Error-Components Models.” Journal of Econometrics 68: 29–51.CrossrefGoogle Scholar

  • Barro, R. J., and J.-W. Lee. 2010. “A New Data Set of Educational Attainment in the World, 1950–2010.” Working Paper 15902, National Bureau of Economic Research.Google Scholar

  • Baum, A., C. Checherita-Westphal, and P. Rother. 2013. “Debt and Growth: New Evidence for the Euro Area.” Journal of International Money and Finance 32: 809–821.Web of ScienceCrossrefGoogle Scholar

  • Caner, M., T. Grennes, and F. Koehler-Geib. 2010. “Finding the Tipping Point—When Sovereign Debt Turns Bad.” The World Bank Policy Research Working Paper.

  • Cecchetti, S. G., M. Mohanty, and F. Zampolli. 2011. “Achieving Growth Amid Fiscal Imbalances: The Real Effects of Debt.” In Proceedings - Economic Policy Symposium - Jackson Hole, 145–196.Google Scholar

  • Checherita-Westphal, C., and P. Rother. 2012. “The Impact of High Government Debt on Economic Growth and Its Channels: An Empirical Investigation for the Euro Area.” European Economic Review 56: 1392–1405.Web of ScienceCrossrefGoogle Scholar

  • Chudik, A., K. Mohaddes, M. H. Pesaran, and M. Raissi. 2017. “Is There a Debt-Threshold Effect on Output Growth?” Review of Economics and Statistics 99: 135–150.CrossrefWeb of ScienceGoogle Scholar

  • Cottarelli, C. 2012. “Fiscal Policy: Reconciling Fiscal Sustainability and Growth.” IMF, Fiscal Affairs Department, Presentation.Google Scholar

  • Delong, J. B., and L. H. Summers. 2012. “Fiscal Policy in a Depressed Economy.” Brookings Papers on Economic Activity 2012: 233–297.CrossrefGoogle Scholar

  • Di Sanzo, S., and M. Bella. 2015. “Public Debt and Growth in the Euro Area: Evidence from Parametric and Nonparametric Granger Causality.” The BE Journal of Macroeconomics 15: 631–648.Google Scholar

  • Dube, A. 2013. “A Note on Debt, Growth and Causality.” Technical report, University of Massachusetts, Amherst, Working Paper.Google Scholar

  • Eberhardt, M., and A. F. Presbitero. 2013. “This Time They’re Different: Heterogeneity and Nonlinearity in the Relationship Between Debt and Growth.” Centre for Finance, Credit and Macroeconomics Working Paper.Google Scholar

  • Egert, B. 2012. “Public Debt, Economic Growth and Nonlinear Effects, Myth or Reality?” OECD Economics Department Working Paper.Google Scholar

  • Elmendorf, D. W., and N. G. Mankiw. 1998. “Government Debt.” NBER Working Papers 6470, National Bureau of Economic Research, Inc.Google Scholar

  • Enders, W., B. L. Falk, and P. Siklos. 2007. “A Threshold Model of Real U.S. GDP and the Problem of Constructing Confidence Intervals in TAR Models.” Studies in Nonlinear Dynamics & Econometrics 11(3). DOI: .CrossrefGoogle Scholar

  • Greiner, A. 2011. “Economic Growth, Public Debt and Welfare: Comparing Three Budgetary Rules.” German Economic Review 12: 205–222.CrossrefWeb of ScienceGoogle Scholar

  • Greiner, A. 2013. “Sustainable Public Debt and Economic Growth Under Wage Rigidity.” Metroeconomica 64: 272–292.Web of ScienceCrossrefGoogle Scholar

  • Herndon, T., M. Ash, and R. Pollin. 2013. “Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff.” Working Papers, Political Economy Research Institute, University of Massachusetts, Amherst.Google Scholar

  • Holtz-Eakin, D., W. Newey, and H. S. Rosen. 1988. “Estimating Vector Autoregressions with Panel Data.” Econometrica 1371–1395.Google Scholar

  • Kourtellos, A., T. Stengos, and C. M. Tan. 2012. “The Effect of Public Debt on Growth in Multiple Regimes.” Journal of Macroeconomics 38: 35–43.Web of ScienceGoogle Scholar

  • Krugman, P. 1988. “Financing vs. Forgiving a Debt Overhang.” Journal of Development Economics 29: 253–268.CrossrefGoogle Scholar

  • Kumar, M. S., and J. Woo. 2010. “Public Debt and Growth.” IMF Working Paper, 10.Google Scholar

  • Lee, S., M. H. Seo, and Y. Shin. 2011. “Testing for Threshold Effects in Regression Models.” Journal of the American Statistical Association 106: 220–231.CrossrefWeb of ScienceGoogle Scholar

  • Lof, M., and T. Malinen. 2014. “Does Sovereign Debt Weaken Economic Growth? A Panel VAR Analysis.” Economics Letters 122: 403–407.CrossrefWeb of ScienceGoogle Scholar

  • Maddison, A. 2010. “Historical Statistics.” http://www.ggdc.net/maddison/oriindex.htm. Accessed 19-May-2014.

  • Minea, A., and A. Parent. 2012. “Is High Public Debt Always Harmful to Economic Growth? Reinhart and Rogoff and some complex nonlinearities.” CERDI Working Paper, 2012-18.Google Scholar

  • Nuxoll, D. A. 1994. “Differences in Relative Prices and International Differences in Growth Rates.” American Economic Review 84: 1423–1436.Google Scholar

  • Osborne, G. 2013. “2013 Conservative Party Conference Speech.” UKPOL. http://www.ukpol.co.uk/uncategorized/george-osborne-2013-conservative-party-conference-speech/.

  • Panizza, U., and A. F. Presbitero. 2013. “Public Debt and Economic Growth in Advanced Economies: A Survey.” Swiss Journal of Economics and Statistics 149: 175–204.CrossrefGoogle Scholar

  • Panizza, U., and A. F. Presbitero. 2014. “Public Debt and Economic Growth: Is There a Causal Effect?” Journal of Macroeconomics 41: 21–41.CrossrefWeb of ScienceGoogle Scholar

  • Pescatori, A., D. Sandri, and J. Simon. 2014. Debt and Growth: Is There a Magic Threshold?. Working Paper 14-34, International Monetary Fund.Google Scholar

  • Rehn, O. 2011. “Debt, Governance and Growth: A Euro Area Perspective, Letter.” Letter, European Commission for Economic and Monetary Affairs, Brussels, Belgium.Google Scholar

  • Reinhart, C. M., and K. S. Rogoff. 2009. This Time is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press.Google Scholar

  • Reinhart, C. M., and K. S. Rogoff. 2010. “Growth in a Time of Debt.” The American Economic Review 100: 573–578.CrossrefGoogle Scholar

  • Reinhart, C. M., and K. S. Rogoff. 2011. “From Financial Crash to Debt Crisis.” The American Economic Review 101: 1676–1706.CrossrefGoogle Scholar

  • Ryan, P. 2012. “The Path to Prosperity: A Blueprint for American Renewal.” Technical report, US Congress, House Committee on the Budget, Washington, DC.Google Scholar

  • Sachs, J. D. 1989. “The Debt Overhang of Developing Countries.” In Debt Stabilization and Development: Essays in Memory of Carlos Diaz Alejandro, edited by G. A. Calvo, R. Findlay, P. J. K. Kouri, and J. B. de Macedo. Oxford: Basil Blackwell.Google Scholar

  • The World Bank. 2014. “World Development Indicators.” On-line database.Google Scholar

  • Yu, P. 2013. “Inconsistency of 2SLS Estimators in Threshold Regression with Endogeneity.” Economics Letters 120: 532–536.Web of ScienceCrossrefGoogle Scholar

  • Yu, P. 2014. “The Bootstrap in Threshold Regression.” Econometric Theory 30: 676–714.CrossrefWeb of ScienceGoogle Scholar

About the article

Published Online: 2018-02-13

Funding Source: European Social Fund

Award identifier / Grant number: SPIRITH

Funding Source: Hrvatska Zaklada za Znanost

Award identifier / Grant number: 7031

Financial support from European Social Fund (Funder Id: 10.13039/501100004895 and Grant Number: SPIRITH) and Hrvatska Zaklada za Znanost (Funder Id: 10.13039/501100004488 and Grant Number: 7031).

Citation Information: Studies in Nonlinear Dynamics & Econometrics, Volume 22, Issue 1, 20160086, ISSN (Online) 1558-3708, DOI: https://doi.org/10.1515/snde-2016-0086.

Export Citation

©2018 Walter de Gruyter GmbH, Berlin/Boston.Get Permission

Supplementary Article Materials

Comments (0)

Please log in or register to comment.
Log in