TY  - GEN
AB  - In this note we theoretically investigate the question of whether the relationship between public debt and economic growth is characterized by an inverse U-shaped functional form. Starting point of our analysis is the paper by Checherita-Westphal et al. (2012) who present an endogenous growth model with public capital and public debt that displays a hump-shaped relation between debt and economic growth. We highlight the mechanism that generates this outcome and we generalize their model by allowing for a more general debt policy. We demonstrate that this nonmonotonic relation only holds if public deficits are exogenously fixed and exactly equal to public investment at each point in time. With a more general debt policy, one realizes that smaller public deficits and lower public debt always lead to a higher balanced growth rate. Thus, starting from a situation where the public deficit equals public investment, governments can raise the long-run growth rate by reducing their deficits.
DA  - 2012
DO  - 10.4119/unibi/2559613
KW  - non-monotonic relation
KW  - economic growth
KW  - Government debt
LA  - eng
PY  - 2012
SN  - 2196-2723
SP  - 9-
TI  - Debt and Growth: Is There a Non-Monotonic Relation?
UR  - https://nbn-resolving.org/urn:nbn:de:0070-pub-25596131
Y2  - 2024-11-22T01:26:54
ER  -