Growth in a time of debt
Carmen Reinhart,Kenneth Rogoff +1 more
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This paper study the relationship between government debt and real GDP growth and find that the relationship is weak for debt/GDP ratios below a threshold of 90 percent of GDP, while for higher levels, growth rates are roughly cut in half.Abstract:
We study economic growth and inflation at different levels of government and external debt. Our analysis is based on new data on forty-four countries spanning about two hundred years. The dataset incorporates over 3,700 annual observations covering a wide range of political systems, institutions, exchange rate arrangements, and historic circumstances. Our main findings are: First, the relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more. We find that the threshold for public debt is similar in advanced and emerging economies. Second, emerging markets face lower thresholds for external debt (public and private)--which is usually denominated in a foreign currency. When external debt reaches 60 percent of GDP, annual growth declines by about two percent; for higher levels, growth rates are roughly cut in half. Third, there is no apparent contemporaneous link between inflation and public debt levels for the advanced countries as a group (some countries, such as the United States, have experienced higher inflation when debt/GDP is high.) The story is entirely different for emerging markets, where inflation rises sharply as debt increases.read more
Figures
Figure 3. External Debt, Growth, and Inflation: Selected Emerging Markets, 1970-2009 
Figure 4. United States: Private Debt Outstanding, 1916–2009 (end-of-period stock of debt as a percent of GDP) 
Figure 1. Cumulative Increase in Real Public Debt Since 2007, Selected Countries 
Figure 1. Cumulative Increase in Real Public Debt Since 2007, Selected Countries 
Figure 2. Government Debt, Growth, and Inflation: Selected Advanced Economies, 1946–2009 
Table 1—Real GDP Growth as the Level of Government Debt Varies: Selected Advanced Economies, 1790–2009 (annual percent change)
Citations
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Journal ArticleDOI
From Financial Crash to Debt Crisis
Carmen Reinhart,Kenneth Rogoff +1 more
TL;DR: In this paper, the authors developed historical time series on public debt, along with data on external debts, allow a deeper analysis of the debt cycles underlying serial debt and banking crises, and they test three related hypotheses at both world aggregate levels and on an individual country basis.
Journal ArticleDOI
The Aftermath of Financial Crises
Carmen Reinhart,Kenneth Rogoff +1 more
TL;DR: A year ago, this paper presented a historical analysis comparing the run-up to the 2007 US subprime financial crisis with the antecedents of other banking crises in advanced economies since World War II (Reinhart and Rogoff 2008a ).
Book
The Entrepreneurial State: Debunking Public vs. Private Sector Myths
TL;DR: The US Entrepreneurial State: From crisis ideology to the Division of Innovative Labour as mentioned in this paper, from crisis ideologies to the division of innovative labour, from crisis ideology to innovative labour.
Journal ArticleDOI
Does high public debt consistently stifle economic growth? A critique of Reinhart and Rogoff.
TL;DR: This paper replicated Reinhart and Rogoff (2010A and 2010B) and found that selective exclusion of available data, coding errors and inappropriate weighting of summary statistics lead to serious miscalculations that inaccurately represent the relationship between public debt and GDP growth among 20 advanced economies.
Journal ArticleDOI
The European Sovereign Debt Crisis
TL;DR: The origin and propagation of the European sovereign debt crisis can be attributed to the flawed original design of the euro as discussed by the authors, and there was an incomplete understanding of the fragility of a monetary union under crisis conditions, especially in the absence of banking union and other European-level buffer mechanisms.
References
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BookDOI
This Time Is Different: Eight Centuries of Financial Folly
Carmen Reinhart,Kenneth Rogoff +1 more
TL;DR: This Time Is Different as mentioned in this paper presents a comprehensive look at the varieties of financial crises, and guides us through eight astonishing centuries of government defaults, banking panics, and inflationary spikes.
Journal ArticleDOI
On the Determination of the Public Debt
TL;DR: In this paper, a public debt theory is constructed in which the Ricardian invariance theorem is valid as a first-order proposition but where the dependence excess burden on the timing of taxation implies an optimal time path of debt issue.
Journal ArticleDOI
From Financial Crash to Debt Crisis
Carmen Reinhart,Kenneth Rogoff +1 more
TL;DR: In this paper, the authors developed historical time series on public debt, along with data on external debts, allow a deeper analysis of the debt cycles underlying serial debt and banking crises, and they test three related hypotheses at both world aggregate levels and on an individual country basis.
Journal ArticleDOI
The Aftermath of Financial Crises
Carmen Reinhart,Kenneth Rogoff +1 more
TL;DR: A year ago, this paper presented a historical analysis comparing the run-up to the 2007 US subprime financial crisis with the antecedents of other banking crises in advanced economies since World War II (Reinhart and Rogoff 2008a ).
Journal ArticleDOI
Fiscal Fatigue, Fiscal Space and Debt Sustainability in Advanced Economies
TL;DR: The authors used a stochastic model of sovereign default in which risk-neutral investors lend to a government that displays "fiscal fatigue" whereby its ability to increase primary balances cannot keep pace with rising debt.