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| Carsten Colombier and Christian Breuer |
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| ''Debt and growth: historical evidence'' |
| ( 2020, Vol. 40 No.3 ) |
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| In this present paper, we examine the relationship between public debt and economic growth in a large historical panel dataset of 17 OECD economics over the period from 1870 to 2016. In contrast, the relevant literature focuses on the post-WW-II period. Several empirical studies provide evidence in support of the 'conventional view' that public debt is adversely associated with economic growth. We show that the relationship between government debt and per-capita GDP growth is neither statistically significant and robust nor unambiguous regarding the sign. While our baseline regressions support the 'conventional view', particularly in the aftermath of World War II, these results are not robust to alternative specifications. This holds for a linear as well as a non-linear relationship between public debt and economic growth. Thus, politicians should exercise great caution in using empirical studies on the debt-growth nexus as a guidance for fiscal policy. |
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| Keywords: Government debt, economic growth, historical dataset, panel regressions, robustness analysis |
JEL: E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General
H6 - National Budget, Deficit, and Debt: General |
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| Manuscript Received : May 10 2020 | | Manuscript Accepted : Sep 24 2020 |
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