Caner et al. (2010), Kumar/Woo (2010), Cecchetti et al. (2011), Checherita-Westphal/Rother (2012) and Baum et al. (2013) find that a rise in public indebtedness causes a reduction in growth when the public debt-to-GDP ratio is above specific thresholds. Nonetheless, various findings of other scholars indicate that this result is not robust. First, Panizza/Presbitero (2013) call into question the approaches used in most of the aforementioned studies to address endogeneity. By employing a different approach and making various robustness checks, Panizza/Presbitero (2014) show that there is no evidence that public debt has a causal effect on growth. Second, the empirical studies of Kourtellos et al. (2013) and Pescatori et al. (2014), which pay particular attention to the investigation of threshold effects, find no evidence for the existence of a specific public debt threshold above which a higher public debt results in lower growth. Third, some researchers report positive links between debt and growth at high levels of public indebtedness. For example, Minea/Parent (2012) find that, while a higher than 90 per cent debt-to-GDP ratio is associated with lower growth, the correlation between debt and growth becomes positive when the debt ratio becomes higher than 115 per cent; additionally, Chang/Chiang (2009), as cited in Baum et al. (2013), show that there are positive effects of the debt ratio on growth even when public indebtedness is high. Fourth, some recent studies that examine both directions of causality find that the negative relationship between public debt and economic growth is primarily explained by the adverse effects of lower growth on public indebtedness and not by the negative impact of public indebtedness on growth (see Dube 2013; Lof/Malinen 2013; Ferreira 2014).
The data set is available at: www.carmenreinhart.com/user_uploads/data/41_data.xlsx (accessed 1 July 2014).
In the case of Greece there are missing values for the public debt-to-GDP ratio in 2008 and 2009. However, in their estimations Reinhart/Rogoff (2013) classify 2008 and 2009 as years of very high public debt. Therefore, in order to be in line with their estimations, the missing values were filled in using the data from the data appendix in Reinhart et al. (2012). This appendix is available at: http://www.aeaweb.org/articles.php?doi=10.1257/jep.26.3.69 (assessed 5 July 2014).
The 2 per cent threshold is arbitrary and is merely used for the purposes of our illustration.
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