On the relation between public debt and economic growth: An empirical investigation

Fincke B, Greiner A. On the relation between public debt and economic growth: An empirical investigation. Working Papers in Economics and Management. Vol 24-2013. Bielefeld: Bielefeld University, Department of Business Administration and Economics; 2013.In this paper we empirically study the relation between public debt and economic growth. We analyze how the public debt to GDP ratio at a certain point in time is correlated with the GDP growth rate in the following period, where we consider a one-year time span, a three-years time interval and a five-years interval. Using panel data comprising seven developed countries from 1970-2012, we estimate a pooled regression model and a random effects model. We find strong evidence for a significantly negative relation between debt and growth. Further, for most specifications this relationship does not seem to be characterized by non-linearities