The impact of government debt on economic growth: an overview for Latin America

Abstract

This paper investigates the impact of government debt on GDP in 16 Latin American economies, namely Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Honduras, Mexico,Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela over a period of about fifty years (1960-2015). The short-run impact of debt on GDP growth is positive, but decreases to close to zero beyond public debt-to-GDP ratios between 64 and 71% (i.e. up to this threshold, additional debt has a stimulating impact on growth). The institutional variable selected shows the expected sign suggesting that countries with democratic governments exhibit higher growth rates.