The Influence of Public Debt on Economic Growth: a Review of Literature

Abstract

Purpose: This paper conducts a thorough examination of the theoretical and empirical literature on the influence of public debt on economic growth in both developed and developing economies. The drive of this research is to determine whether there is mutual agreement on the effects of public debt on economic growth in global economies.
 
 Design/methodology/approach: A literature review approach is adopted, and the current implications and future directions are explored based on theoretical and empirical analyses.
 
 Findings: The investigation uncovers a range of contradictory information on the relative influence of public debt on economic growth. Although most of the literature reviewed supports the negative impact of public debt on economic growth, several other studies have found a long-run affirmative influence of public debt on economic growth via the fiscal multiplier effect. The article also uncovered that a few more research back up the Ricardian Equivalence Hypothesis (REH), which claims that there is no relationship between public debt and economic growth. Overall, it indicates that theoretical models and empirical studies produce indecisive outcomes based on a variety of criteria such as the level of development of the sampled nations, the methodology utilized, data coverage, and the researchers' choice of control variables, among others.
 
 Practical implications: The outcomes may assist policymakers and governments in designing fiscal policies by analysing how existing debts affect the level of growth.