We study the long-run relationship between public debt and growth in a large panel of countries. Our analysis takes particular note of theoretical arguments and data considerations in modelling the debt-growth relationship as heterogeneous across countries. We investigate the issue of nonlinearities (‘debt thresholds’) in both the cross- and within-country dimensions, employing novel approaches and diagnostics from the time-series literature adapted for use in the panel. Our findings suggest that whatever the shape and form of the debtgrowth relationship, it differs across countries, so that appropriate policies for one country may be seriously misguided in another.
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Markus Eberhardt and Andrea F. Presbitero
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Sir Clive Granger BuildingUniversity of NottinghamUniversity Park Nottingham, NG7 2RD
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