The effect of public debt on state and local economic growth and its implication for measuring debt capacity: A simultaneous equations approach.

摘要

his dissertation develops a theoretical framework to explain the relationship between public borrowing and economic growth and concentrates on four economic variables: public debt level, borrowing cost, public investment in infrastructure and economic growth. A simultaneous model is built and analyzed using different estimation methods so as to capture the relationship between the main dependent variables of interest, while controlling for the dynamics between other endogenous variables. The results show that public borrowing impacts state and local economic growth in a quadratic manner. When the borrowing level is within certain limit, it will improve economic growth primarily due to its contribution to the improvement of infrastructure; when the borrowing exceeds that limit, borrowing more money from the financial market will instead hurt regional economic growth due to its negative effects such as overinvesting in infrastructure, heavy debt service burden, among others. Given that this quadratic pattern is real, an optimal level of borrowing can be found. Based on our sample, this optimal level of total outstanding debt should fall in a range between