Saturday, April 21, 2012

Is high public debt harmful for economic growth?


Countries with high public debt tend to grow slowly – a correlation often used to justify austerity. This column presents new evidence challenging this view. The authors point out that correlation does not imply causality – it may be that slow growth causes high debt. They argue that policymakers should be wary – the case for cutting debt to boost growth still needs to be made.
Read it at Vox.eu
Is high public debt harmful for economic growth?
by Ugo Panizza, Chief of the Debt and Finance Analysis Unit in the Division on Globalization and Development Strategies of UNCTAD and Andrea F Presbitero, Assistant Professor, Department of Economics, Università Politecnica delle Marche


3 comments:

Anonymous said...

it may be that slow growth causes high debt.

This is silly. These are two different choice sets.

PeterP said...

Anonymous,

What you said is silly. They are not choice sets, but highly dependent. Debt impacts growth, and growth impacts debt, you cannot just cherry pick your "choices", that is really basic.

Tyler said...

CBO estimates that the President’s budgetary proposals would boost overall output initially but reduce it in later years. For the 2013–2017 period, under most of the estimates CBO produced using alternative models and assumptions, the President’s proposals would increase real (inflation-adjusted) output (relative to that under current law) primarily because taxes would be lower than those under current law, and, therefore, people’s disposable income and their demand for goods and services would be greater. Over time, however, the proposals would reduce real output (relative to that under current law) because the deficits would exceed those projected under current law, and the effects of increasing government debt would more than offset the favorable effects of lower marginal tax rates on labor income.