The impact of government debt on economic growth: A Reality Check for the Pampas and Beyond

Córdoba

Workshop; Workshop del Instituto de Economía y Finanzas; 2017

Instituto de Economía y Finanzas, Universidad Nacional de Córdobaa

This paper investigates the impact of government debt on GDP in 16 Latin American economies, namely Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela over a period of about fifty years (1960-2015). The short-run impact of debt on GDP growth is positive, but decreases to close to zero beyond public debt-to-GDP ratios of around 67% (i.e. up to this threshold, additional debt has a stimulating impact on growth). The institutional variable selected shows the expected sign suggesting that countries with democratic governments exhibit higher growth rates.