IS THE REINHART-ROGOFF DEBT THRESHOLD APPLICABLE TO ITALY?
Keywords:
Fiscal Policy, Government Debt, Reinhart-Rogoff Hypothesis, Debt Threshold.
Abstract
This paper employs an extended production function to examine the relationship between central government debt and economic growth in Italy. The results show that the threshold of the central government debt ratio for Italy is estimated to be 105.00%, which is greater than the 90% debt threshold proposed by Reinhart and Rogoff. Besides, a higher growth rate of labor employment or investment/GDP ratio would raise the growth rate. Hence, the debt threshold proposed by Reinhart-Rogoff underestimates the debt threshold for Italy. The finding suggests that the debt ratio of 131.09% in 2019 is well above the debt threshold and is likely to be unsustainable.
References
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Bastasin, C., Mischitelli, M., & Toniolo, G. (2019). Living with high public debt: Italy 1861-2018. SEP Working Paper 11.
Baum, A., Checherita-Westphal, C., & Rother, P. (2013). Debt and growth: New evidence for the euro area.Journal of International Money and Finance, 32(February), 809-821.
Cecchetti, S. G., Mohanty, M. S., & Zampolli, F. (2011). The real effects of debt. Bank for International Settlements, Bis Working Papers No. 352.
Checherita-Westphal, C., & Rother, P. (2012). The impact of high government debt on economic growth and its channels: An empirical investigation for the euro area. European Economic Review, 56(7), 1392-1405.
Chirwa, T. G. (2017). Public debt and economic growth nexus in the Euro area: A dynamic panel ARDL approach. UNISA Economic Research Working Paper 19/2017.
Égert, B. (2015a). The 90% Public debt threshold: The rise and fall of a stylized fact.Applied Economics, 47(34-35), 3756-3770.
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Goel, R. K., Payne, J. E., & Ram, R. (2008). R&D expenditures and US economic growth: A disaggregated approach. Journal of Policy Modeling, 30(2), 237-250.
Herndon, T., Ash, M., & Pollin, R. (2014). Does high public debt consistently stifle economic growth? A critique of Reinhart and Rogoff.Cambridge Journal of Economics, 38(2), 257-279.
Jacobs, J., Ogawa, K., Sterken, E., & Tokutsu, I. (2020). Public debt, economic growth, and the real interest rate: A panel VAR approach to EU and OECD countries. Applied Economics, 52(12), 1377-1394.
Lechtenberg, L. (2017). The debt-to-GDP threshold effect on output: A country-specific analysis. Aisthesis, 8(1), 26-34.
Lee, S., Park, H., Seo, M. H., & Shin, Y. (2017). Testing for a debt‐threshold effect on output growth. Fiscal Studies, 38(4), 701-717.
Minea, A., & Parent, A. (2012). Is high public debt always harmful to economic growth? Reinhart and Rogoff and some complex nonlinearities. CERDI, working paper, halshs-00700471.
Ram, R. (1986). Government size and economic growth: A new framework and some evidence from cross-section and time-series data. American Economic Review, 76(1), 191-203.
Ram, R. (1989). Government size and economic growth: A new framework and some evidence from cross-section and time-series data: reply. American Economic Review, 79(1), 281-284.
Reinhart, C. M., & Rogoff, K. S. (2010a). Growth in a time of debt.American Economic Review, 100(2), 573-78.
Reinhart, C. M., & Rogoff, K. S. (2010b). Debt and growth revisited. MPRA Paper No. 24376.
Sapir, A. (2018). High public debt in euro-area countries: comparing Belgium and Italy. (No. 2018/15). Bruegel Policy Contribution.
Swamy, V. (2020). Debt and growth: Decomposing the cause and effect relationship. International Journal of Finance & Economics, 25(2), 141-156.
Woo, J., & Kumar, M. S. (2015). Public debt and growth. Economica, 82(328), 705-739.
Bastasin, C., Mischitelli, M., & Toniolo, G. (2019). Living with high public debt: Italy 1861-2018. SEP Working Paper 11.
Baum, A., Checherita-Westphal, C., & Rother, P. (2013). Debt and growth: New evidence for the euro area.Journal of International Money and Finance, 32(February), 809-821.
Cecchetti, S. G., Mohanty, M. S., & Zampolli, F. (2011). The real effects of debt. Bank for International Settlements, Bis Working Papers No. 352.
Checherita-Westphal, C., & Rother, P. (2012). The impact of high government debt on economic growth and its channels: An empirical investigation for the euro area. European Economic Review, 56(7), 1392-1405.
Chirwa, T. G. (2017). Public debt and economic growth nexus in the Euro area: A dynamic panel ARDL approach. UNISA Economic Research Working Paper 19/2017.
Égert, B. (2015a). The 90% Public debt threshold: The rise and fall of a stylized fact.Applied Economics, 47(34-35), 3756-3770.
Égert, B. (2015b). Public debt, economic growth, and nonlinear effects: Myth or reality? Journal of Macroeconomics, 43(March), 226-238.
Goel, R. K., Payne, J. E., & Ram, R. (2008). R&D expenditures and US economic growth: A disaggregated approach. Journal of Policy Modeling, 30(2), 237-250.
Herndon, T., Ash, M., & Pollin, R. (2014). Does high public debt consistently stifle economic growth? A critique of Reinhart and Rogoff.Cambridge Journal of Economics, 38(2), 257-279.
Jacobs, J., Ogawa, K., Sterken, E., & Tokutsu, I. (2020). Public debt, economic growth, and the real interest rate: A panel VAR approach to EU and OECD countries. Applied Economics, 52(12), 1377-1394.
Lechtenberg, L. (2017). The debt-to-GDP threshold effect on output: A country-specific analysis. Aisthesis, 8(1), 26-34.
Lee, S., Park, H., Seo, M. H., & Shin, Y. (2017). Testing for a debt‐threshold effect on output growth. Fiscal Studies, 38(4), 701-717.
Minea, A., & Parent, A. (2012). Is high public debt always harmful to economic growth? Reinhart and Rogoff and some complex nonlinearities. CERDI, working paper, halshs-00700471.
Ram, R. (1986). Government size and economic growth: A new framework and some evidence from cross-section and time-series data. American Economic Review, 76(1), 191-203.
Ram, R. (1989). Government size and economic growth: A new framework and some evidence from cross-section and time-series data: reply. American Economic Review, 79(1), 281-284.
Reinhart, C. M., & Rogoff, K. S. (2010a). Growth in a time of debt.American Economic Review, 100(2), 573-78.
Reinhart, C. M., & Rogoff, K. S. (2010b). Debt and growth revisited. MPRA Paper No. 24376.
Sapir, A. (2018). High public debt in euro-area countries: comparing Belgium and Italy. (No. 2018/15). Bruegel Policy Contribution.
Swamy, V. (2020). Debt and growth: Decomposing the cause and effect relationship. International Journal of Finance & Economics, 25(2), 141-156.
Woo, J., & Kumar, M. S. (2015). Public debt and growth. Economica, 82(328), 705-739.
Published
2020-11-08
How to Cite
Hsing, Y. (2020). IS THE REINHART-ROGOFF DEBT THRESHOLD APPLICABLE TO ITALY?. American Economic & Social Review, 6(2), 31-38. https://doi.org/10.46281/aesr.v6i2.865
Section
Research Paper/Theoretical Paper/Review Paper/Short Communication Paper
Copyright (c) 2020 Yu Hsing
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