How critical is government debt to economic growth?

Abstract

If we were to choose the events that had the most significant economic impact on developed countries in the last two decades, the Global Financial Crisis and the recent COVID-19 pandemic would probably be among the top choices of many people. Its implications on government debt have intensified the debate on whether economic growth could be hampered by excessive debt. To shed light on this debate, the present study analyses the long-run effects that public debt has on economic growth in a sample of 24 developed countries from 1997 to 2021 using dynamic panel data and SGMM estimation methods to control for endogeneity and reverse causality. Controlling for these factors allow determining the causal relationship between growth and debt. In a nutsell, it controls for the possibility of erroneously estimating the effects of growth to debt, rather than debt to growth. Additionally, government competitiveness was included as part of the study to explain how internal factors other than the typical economic variables used in the field of economics affect the economic growth of countries. The results suggest that high public debt-to-GDP ratios have detrimental effects on growth above a certain threshold – excessive indebtedness leads to debt unustainability – and thus, we find evidence of non-linearities of debt. In particular, the debt threshold estimated when government competitiveness was included as an independent variable was 128% of the debt-to-GDP ratio. For the sample of 24 OECD countries studied, surpassing this threshold has negative effects on growth that will be visible in the long-run.

2008세계 금융위기와 현재 전 세계가 겪고 있는 코로나-19 팬데믹은OECD 국가 경제에 가장 피해를 많이 입은 사건으로 꼽을 수 있다. 경제 저성장과 정부부채에 미친 타격은 과대평가 하기 어려울 정도로 많은 정부의 재정상태나 사람들의 삶에 큰 영향을 미쳤다. 정부부채에 대한 염려가 커지면서 이 주제에 학술적인 관심이 증가하며 부채가 경제에 미치는 영향의 연구가 부족함이 들어났다. 본문은 정부부채가 경제성장에 미치는 영향을 OECD 24국 샘플로 주청한다. 1997부터 2021년 데이터를 사용하여, SGMM 방법론을 통해 정부부채와 경제성장 간의 내생성과 역인과성을 통제한다. 높은 정부부채는 경제성장에 부정적인 효과를 미치고 정부부채와 경제 성장은 비선형 관계를 지니고 있다고 결론을 내린다.