The Heterogeneous Public Debt–Growth Relationship: The Role of the Expenditure Multiplier

Currently countries are facing a new crisis caused by the COVID-19, which leads to rise of government expenditures and additional borrowing. This situation highlights importance examine factors determine level public debt that still sustains economic growth. A growing body research supports idea non-linear debt–growth relationship estimates threshold above becomes unsustainable has negative effect on output. The empirical evidence points out there is no single sustainable holds for all countries. complements scarce heterogeneous provides some insights publicly available statistical indicators might signal relatively low/high expenditure multiplier and, at same time, potentially unsustainable/sustainable growth stimulus through use borrowed funds. We test hypothesis shaping impact Our examination based panel data analysis in groups with expected high low multiplier. Research results show statistically significant marginal starts manifest lower debt-to-GDP ratio when vice-versa. study shed light sources heterogeneity relationship. can conclude borrow more sustain In contrast, multiplier,