Abstract: This study examines the question: does government debt affect economic growth? Theory suggests that countries may turn to money growth and inflation to manage debt levels, and that this in turn decreases growth in GDP. The results of this research show that, controlling for endogeneity and panel data effects, only low income countries use inflation and money growth to manage debt, while higher income countries do not. The results suggest that low income countries may use money growth and inflation as an alternative to taxation, and simultaneously borrow to finance government expenditures. Additionally, this study indicates that there is no statistically significant relationship between the level of debt/GDP and subsequent growth in GDP. However, in the short-run of five years there is some evidence of a negative relationship between the change of debt/GDP and growth in GDP in the following years, but the size of the impact is relatively small.
Works in Progress
"The Correlation between Political Systems and Public Debt Accumulation"