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Public debt and economic growth: Economic systems matter

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  • Ahlborn, Markus
  • Schweickert, Rainer
Abstract
Most studies on the relationship between public debt and economic growth implicity assume homegenous debt effects across their samples. We - in accordance with recent literature - challenge this view and state that there likely is a great deal of cross-country heterogeneity in that relationship. However, other than scholars assuming that all countries are different, we expect that clusters of countries differ. We identify three country clusters with distinct economic systems: Liberal (Anglo Saxon), Continental (Core EU members) and Nordic (Scandinacian). We argue that different degrees of fiscal uncertainty at comparable levels of public debt between those economic systems constitute a major source of hetergeneity in the debt-growth relationship. Our empirical evidence supports this assumption. Continental countries face more growth reducing public debt effects than especially Liberal countries. There, public debt apparently exerts neutral or even positive growth effects, whil for Nordic countries a non-linear relationship is discovered, with negative debt effects kicking in at public debt values of around 60% of GDP.

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  • Ahlborn, Markus & Schweickert, Rainer, 2015. "Public debt and economic growth: Economic systems matter," PFH Forschungspapiere/Research Papers 2015/02, PFH Private University of Applied Sciences, Göttingen.
    • Handle: RePEc:zbw:pfhrps:201502
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    3. Mindaugas Butkus & Diana Cibulskiene & Lina Garsviene & Janina Seputiene, 2021. "Empirical Evidence on Factors Conditioning the Turning Point of the Public Debt–Growth Relationship," Economies, MDPI, vol. 9(4), pages 1-22, December.
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    9. Mindaugas Butkus & Diana Cibulskiene & Lina Garsviene & Janina Seputiene, 2021. "The Heterogeneous Public Debt–Growth Relationship: The Role of the Expenditure Multiplier," Sustainability, MDPI, vol. 13(9), pages 1-22, April.
    10. Saungweme, Talknice & Odhiambo, Nicholas M, 2019. "Sovereign debt and economic growth in Zimbabwe: Amultivariate causal linkage," Working Papers 25680, University of South Africa, Department of Economics.
    11. Augustine, Blessy & Rafi, O.P.C. Muhammed, 2023. "Public debt - economic growth nexus in emerging and developing economies: Exploring nonlinearity," Finance Research Letters, Elsevier, vol. 52(C).
    12. Mindaugas Butkus & Janina Seputiene, 2018. "Growth Effect of Public Debt: The Role of Government Effectiveness and Trade Balance," Economies, MDPI, vol. 6(4), pages 1-27, November.
    13. Marta Gómez-Puig & Simón Sosvilla-Rivero, 2017. "Public debt and economic growth: Further evidence euro area," IREA Working Papers 201715, University of Barcelona, Research Institute of Applied Economics, revised Sep 2017.
    14. Dmytro Zhuravlov & Mykhailo Prokhorenko & Tamara Chernadchuk & Vitaliy Omelyanenko & Valentyna Shevchenko, 2021. "The impact of the public debt of a country on the sustainable development of entrepreneurship," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 8(4), pages 654-667, June.
    15. Puonti, Päivi, 2022. "Public Debt and Economic Growth," ETLA Reports 127, The Research Institute of the Finnish Economy.
    16. Dobrota Gabriela & Popescu Anisia-Maria & Neacsu Alexandru Adrian, 2023. "An Empirical Study On Fiscal Policy And Economic Growth In Romania," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 6, pages 32-39, December.
    17. Martin Murín, 2018. "Vplyv verejného dlhu a jeho štruktúry na ekonomického rast vybraných vyspelých krajín [The Influence of Public Debt and Its Structure on Economic Growth of Advanced Economies]," Politická ekonomie, Prague University of Economics and Business, vol. 2018(2), pages 178-200.
    18. Mohammad Motasem ALrfai & Danilah Binti Salleh & Waeibrorheem Waemustafa, 2022. "Empirical Examination of Credit Risk Determinant of Commercial Banks in Jordan," Risks, MDPI, vol. 10(4), pages 1-11, April.
    19. Emilian Dobrescu, 2018. "Functional trinity of public finance in an emerging economy," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 7(1), pages 1-27, December.
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    21. Nelson Derrick Nguepi & Ibrahim Ngouhouo & Irina Bilan, 2024. "Foreign or Domestic Public Debt for Cameroon’s Development? An Externality Approach," Sustainability, MDPI, vol. 16(16), pages 1-27, August.

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    More about this item

    Keywords

    Public Debt; Economic Growth; Economic Systems; Fiscal Policy; Welfare State;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • P10 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - General
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems
    • H10 - Public Economics - - Structure and Scope of Government - - - General

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