Effects of national/government debt on economic growth (GDP growth)

| December 13, 2015

Effects of national/government debt on economic growth (GDP growth)

This Time is Different, Eight Centuries of Financial Folly,” Carmen Reinhart and Kenneth Rogoff conducted a similar (but more in depth) analysis of the relationship of debt to economic growth and found that growth tends to slow down significantly when the debt to GDP ratio hits 90%.

In “Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff,” Thomas Herndon, Michael Ash and Robert Pollin found an issue with Reinhart and Rogoff’s calculations. Herndon, Ash and Pollin’s calculations concluded that economic growth shouldn’t suddenly shift at the 90% mark but rather at the 120% mark.

Use these studies above for background information.

Basically answer the question: Does national debt have an effect on economic productivity? If so, explain how.

Impact of sovereign debt

How it affects economic growth
– Productivity
– Incentives
– Lessened private investment
– Lower government spending

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