The Macroeconomic Impact of Government Debt: An Empirical Analysis of Thailand

Abstract

AbstractThe issue of rising public debt is an important topic of increased focal point in the developing world. Especially, since the COVID-19 outbreak, governments in many countries create debts to relieve the effects of the pandemic. Thailand is no exception. The public debt is estimated at 58.60 per cent of the GDP in 2021. This raises the concern on the potential macroeconomic impact of public debt, especially the effect on economic growth. The connection between public debt and economic growth is ongoing controversial matter. The existing theories and empirical findings exhibit ambiguous effects of public debt on economic growth. Accordingly, this chapter scrutinizes the impact of government debt on economic growth of Thailand. An autoregressive distributed lag (ARDL) model is adopted for empirical estimations, based on endogenous growth theory, using quarterly data between 2002Q1 and 2019Q4. The Toda-Yamamoto approach on Granger causality test is employed to increase the robustness of the study. The findings indicate that a rise in total public debt, especially from domestic public debt, contributes to economic growth in general. However, the findings should be interpreted cautiously in terms of policy implications for the debt’s effect in COVID-19 context. This is because most of the money is used to support consumption rather than to contribute on productive sectors.KeywordsGovernment debtEconomic growthThailand