Public Debt and Economic Growth: New Evidence of the Non-Linearity

Abstract

The aim of this paper is to address the relationship between public debt and economic growth. The paper uses the PSTR model to a broad panel data set for 126 industrialized and developing countries over the period of 1964-2014. We divide the data set into four groups, namely, high income countries, upper-middle-income countries, lower middle-income and low-income countries. We have mainly addressed two aspects of this relationship: the threshold estimates for the whole sample, as well as for different sub-samples, and some country-specific characteristics that can possibly affect the degree of sensitivity between public debt and growth. Our first-stage findings confirmed those in the literature that hold that the public debt-growth relationship is nonlinear and our threshold estimates increase with the level of income.