The Effect of Public Debt on Growth in Multiple Regimes

Andros Kourtellos (), Thanasis Stengos and Chih Ming Tan

No 1210, Working Papers from University of Guelph, Department of Economics and Finance

Abstract: We employ a structural threshold regression methodology to investigate the heterogeneous effects of debt on growth using public debt as a threshold variable as well as several other plausible variables. Our methodology allows us to address three sources of model uncertainty that characterize cross-country growth data: parameter heterogeneity, theory uncertainty, and endogeneity. We find strong evidence for threshold effects based on democracy, which implies that higher public debt results in lower growth for countries in the Low-Democracy regime. Our results are consistent with the presence of parameter heterogeneity in the cross-country growth process due to fundamental determinants of economic growth proposed by the new growth theories.

Keywords: parameter heterogeneity; public debt; debt threshold; threshold regression. (search for similar items in EconPapers)
JEL-codes: C59 O40 Z12 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-fdg
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Citations: View citations in EconPapers (16)

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Related works:
Journal Article: The effect of public debt on growth in multiple regimes (2013)
Working Paper: The Effect of Public Debt on Growth in Multiple Regimes (2012)
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