On the public debt and growth threshold: one size does not necessarily fit all

摘要

In a time of high debt and sluggish economic growth, the Reinhart and Rogoff (2010) conjecture of a common 90% debt threshold for advanced economies triggered a controversial debate among economists and policy-makers. We analyse the relationship between public debt and economic growth for a sample of 20 advanced economies over the period of 1880-2010, using a regression kink model with an unknown threshold proposed by Hansen (2017). We show that the relationship between public debt and economic growth is time-varying and state-dependent. Particularly, the public debt and economic growth relationship is instable for each country in the sample across the whole period of 1880-2010, and the postwar period of 1950-2010, and subject to data and country heterogeneities. These findings reject the existence of any common threshold fitting all countries and call for more theory-based models that take into account fundamentals that vary between countries and impact debt-growth interactions.