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Sunday, November 17, 2013

Public Debt and Economic Growth: There is No ‘Tipping Point’

One more quick one:

Public debt and economic growth: There is no ‘tipping point’, by Markus Eberhardt and Andrea F Presbitero: The presence of a common threshold, or ‘tipping point’ – beyond which the detrimental impact of debt on growth is significant, or significantly increases – is currently taken as given in many policy circles. In the US, although many political battles impinge on the Congressional debate over the debt ceiling and the resulting government shutdown of October 2013, this somewhat reflected a widespread belief that debt is dangerous, and that fiscal austerity represents the only way of restoring sustainable growth. In the UK, Chancellor George Osborne displayed a similar sentiment when telling his annual party conference in Manchester this year that dealing with the repercussions of the financial crisis is not over “[u]ntil we’ve fixed the addiction to debt that got this country into this mess in the first place” (emphasis added). Without a doubt, these strong convictions and ensuing actions were strongly influenced by the work of Carmen Reinhart and Ken Rogoff (2010a), who were among the first to suggest a debt-to-GDP threshold of around 90%, beyond which economic growth is seriously affected by the debt burden. ...[continue]...

    Posted by on Sunday, November 17, 2013 at 11:56 AM in Economics | Permalink  Comments (31)


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