Growth in a Time of Debt

"Growth in a Time of Debt", also known by its authors' names as Reinhart–Rogoff, is an economics paper by American economists Carmen Reinhart and Kenneth Rogoff published in a non peer-reviewed issue of the American Economic Review in 2010. Politicians, commentators, and activists widely cited the paper in political debates over the effectiveness of austerity in fiscal policy for debt-burdened economies.[1] The paper argues that when "gross external debt reaches 60 percent of GDP", a country's annual growth declined by two percent, and "for levels of external debt in excess of 90 percent" GDP growth was "roughly cut in half."[2] Appearing in the aftermath of the financial crisis of 2007–2008, the evidence for the 90%-debt threshold hypothesis provided support for pro-austerity policies.[3]

In 2013, academic critics accused Reinhart and Rogoff of employing methodology that suffered from 3 major errors; they asserted that the underlying data did not support the authors' conclusions. These critics held that the Reinhart–Rogoff paper had led to unjustified adoption of austerity policies for countries with various levels of public debt.[4][5][6][7]

Further papers by Rogoff and Reinhart,[8] and the International Monetary Fund,[9] which were not found to contain similar errors, found much lower impact on GDP growth. The threshold hypothesis retains adherents[10] as well as critics, who suggest that the thresholds in the relation between public debt and economic growth lack robustness,[11] so a consensus on the 90%-threshold hypothesis in the relation between public debt and economic growth has been elusive. A 2022 meta-analysis was unable to reject the null hypothesis after controlling for publication bias.[12]

  1. ^ Reinhart, Carmen M.; Rogoff, Kenneth S. (April 26, 2013). "Debt, Growth and the Austerity Debate". New York Times (New York ed.). p. A6.
  2. ^ Reinhart, Carmen M.; Rogoff, Kenneth S. (2010). "Growth in a Time of Debt" (PDF). American Economic Review. 100 (2): 573–78. doi:10.1257/aer.100.2.573.
  3. ^ Shuchman, Daniel (April 18, 2013). "That Reinhart and Rogoff Committed a Spreadsheet Error Completely Misses the Point". Capital Flows. Forbes.
  4. ^ Cite error: The named reference Interview_with_Herndon_and_Ash was invoked but never defined (see the help page).
  5. ^ Cite error: The named reference economonitor was invoked but never defined (see the help page).
  6. ^ Mencinger, Jernej; Aristovnik, Aleksander; Verbič, Miroslav (2014). "The Impact of Growing Public Debt on Economic Growth in the European Union". Amfiteatru Economic [ro]. 16 (35): 403–414.
  7. ^ "The Impact of Growing Public Debt on Economic Growth in the European Union". January 2014.
  8. ^ Reinhart, Carmen M.; Reinhart, Vincent R.; Rogoff, Kenneth S. (2012). "Public Debt Overhangs: Advanced-Economy Episodes since 1800". Journal of Economic Perspectives. 26 (3): 69–86. doi:10.1257/jep.26.3.69.
  9. ^ World Economic and Financial Surveys, World Economic Outlook (WEO), Hopes, Realities, and Risks, April 2013, International Monetary Fund http://www.imf.org/external/pubs/ft/weo/2013/01/index.htm
  10. ^ Hukkinen, Juhana; Viren, Matti (2016-12-28). "How toxic is public debt?". International Journal of Public Policy. 13 (1–2): 53–68. doi:10.1504/IJPP.2017.081045. ISSN 1740-0600.
  11. ^ Égert, Balázs (2015-07-27). "The 90% public debt threshold: the rise and fall of a stylized fact". Applied Economics. 47 (34–35): 3756–3770. doi:10.1080/00036846.2015.1021463. ISSN 0003-6846. S2CID 15191017.
  12. ^ Heimberger, Philipp (24 September 2022). "Do higher public debt levels reduce economic growth?". Journal of Economic Surveys. doi:10.1111/joes.12536. hdl:10419/259532. ISSN 0950-0804. Retrieved 22 July 2023. Closed access icon