scholarly journals Public Debt, Economic Growth and Non-Linear Effects: Myth or Reality?

2013 ◽  
Author(s):  
Balázs Égert
Keyword(s):  
Economic Growth ◽  
Public Debt ◽  
Non Linear ◽  
Linear Effects

scholarly journals Evaluation of the Non-Linear Effects of the Public Debt on the Economic Growth of the WAEMU

2020 ◽  
Vol 5 (2) ◽  
pp. p63
Author(s):  
Moussa SIGUE ◽  
Moussa COULIBALY
Keyword(s):  
Economic Growth ◽  
Quadratic Form ◽  
Public Debt ◽  
Institutional Quality ◽  
Economic Conditions ◽  
Macroeconomic Policies ◽  
The Public ◽  
Non Linear ◽  
Linear Effects ◽  
The Relationship

The aim of this article is to analyse the nature of the relationship between public debt and economic growth in the WAEMU. A standard growth model was specified and then estimated in quadratic form from the GMM (GMM). The results show a non-linear relationship between public debt and economic growth. Thus, public debt stimulates economic growth when it does not exceed the threshold of 15% of GDP. Robustness tests show that public debt is boosting the economic conditions of countries with sound macroeconomic policies and good institutional quality.

scholarly journals GOVERNMENT INDEBTEDNESS AND ECONOMIC GROWTH IN THE REPUBLIC OF NORTH MACEDONIA

2020 ◽  
Author(s):  
Martin Noveski ◽  
Nina Mojsova Kjoseva ◽  
Sasho Kjosev
Keyword(s):  
Economic Growth ◽  
Least Squares ◽  
Public Debt ◽  
Turning Point ◽  
Negative Impact ◽  
Generalized Method Of Moments ◽  
Reverse Causality ◽  
General Government ◽  
Non Linear ◽  
The Republic

Government consumption plays an important role for stability of the national economy, especially in periods of economic crisis. However, rapidly growing public debt is a concerning issue nowadays, since it might jeopardize economic growth perspectives. Economic theory suggests that public debt has non-linear impact on economic growth in a form of inverted U-shape. In other words, it is believed that after a certain threshold, public debt will have negative impact on economic growth. Given that such threshold varies significantly across countries, the aim of this paper is to calculate the turning point of the public debt impact in the Republic of North Macedonia. For this purpose, we use non-linear multiple regression model for real GDP growth rate as dependent variable, general government public debt-to-GDP ratio (in nominal and squared terms) as key independent variable, as well as several other controlling variables. Since theory also suggests reverse causality between economic growth and public debt, we use three different estimation techniques (Ordinary Least Squares, Two-Stages Least Squares, and Generalized Method of Moments) to deal with potential endogeneity, as well as to cross-validate the results. Our results show that general government debt in the Republic of North Macedonia positively affects economic growth until it reaches around 30% of GDP, whereas further indebtedness after that turning point will most likely have negative impact. Given that current debt level is slightly above 40% (10 percentage points higher than the turning point), whereby due to the COVID-19 crisis it is expected to grow even more in the upcoming years, the need of urgent fiscal consolidation inevitably arises. In this regards, deeper and more comprehensive analysis is needed in order to identify adequate channels for its efficient and effective implementation.

scholarly journals Public Debt Threshold in the Republic of North Macedonia

2021 ◽  
Author(s):  
Sasho Kjosev ◽  
Martin Noveski ◽  
Nina Mojsova Kjoseva
Keyword(s):  
Economic Growth ◽  
Public Debt ◽  
Turning Point ◽  
Generalized Method Of Moments ◽  
Annual Data ◽  
Reverse Causality ◽  
The Public ◽  
General Government ◽  
Non Linear ◽  
The Republic

Research question: Is there a non-linear relationship between public debt and economic growth in North Macedonia, in the form of an inverted U-shape? Motivation: Government consumption plays an important role in the stability of the national economy, especially in periods of economic crisis. However, a rapidly growing public debt is a concerning issue nowadays, since it might jeopardize economic growth perspectives. Economic theory suggests that public debt has non-linear impact on economic growth in the form of an inverted U-shape. In other words, it is believed that after a certain threshold, the public debt will have deleterious impact on economic growth. Idea: Given that such threshold varies significantly across countries, the aim of this paper is to calculate the turning point of the public debt impact in the Republic of North Macedonia. Tools: For this purpose, we use non-linear multiple regression model for the real GDP growth rate as a dependent variable, general government public debt-to-GDP ratio (in nominal and squared terms) as a key independent variable, as well as several other controlling variables. Since theory also suggests reverse causality between economic growth and public debt, we use two different estimation techniques (Ordinary Least Squares and Generalized Method of Moments) to deal with potential endogeneity, and to cross-validate the results. Data: In this regard, we use annual data for the period 1998 – 2019, for 14 variables in total, obtained from several different data sources. Findings: Our results show that general government debt in the Republic of North Macedonia positively affects economic growth until it reaches around 30% of GDP, whereas further indebtedness after that turning point will most likely have a negative impact. Contribution: Given that current debt level is far above the estimated turning point, the need of urgent fiscal consolidation inevitably arises. This is especially important in the light of the ongoing COVID-19 crisis, which imposed the need for strong government intervention and pointed out the importance of the fiscal space for such matter.

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