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Economic growth after debt surges
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Autores
Orientador(es)
Resumo(s)
Debt levels, both private and public, were already at record highs before the Covid-19 pandemic,
and surged further in 2020. The high indebteness raises concerns whether it will undermine future
growth prospects. This paper contributes to the ongoing debate by examining what happens to
economic growth after debt surges. We apply a local projection method to a new dataset of debt
surges in 190 countries between 1970 and 2020. How results show that the relationship between
debt surges and economic growth are complex. Debt surges tend to be followed by weaker
economic growth and persistently lower output. However, this negative relationship does not
always hold. Surges in public debt tend to have the most negative impact on future growth
prospects. This is particularly the case if the economy is already operating with a large positive
output gap. Debt surges also tend to be followed by weaker economic growth if the initial debt
levels are high, especially for private debt surges. Our results also show how debt surges impact
future growth. Public debt surges are associated with especially weaker private and public
investment, although both private and public consumption are also negatively affected. Surges in
corporate debt are followed by lower private and public investment.
Descrição
Palavras-chave
Public debt private debt economic growth potential GDP investment panel data local projection nonlinearities
Contexto Educativo
Citação
Jalles, João Tovar e Paulo Medas (2022). "Economic growth after debt surges". REM Working paper series, nº 0244/2022
Editora
ISEG - REM - Research in Economics and Mathematics