The relationship between debt and growth revisited

The relationship between public debt and economic growth remains one of the most debated issues in economics. The existing literature is extensive and controversial, with empirical evidence suggesting that the sign and magnitude of this relationship depend on methodology, time horizon and the countries covered. This paper provides new evidence on the impact of debt on growth using a panel of 38 countries over the period 1974–2023. By estimating a growth model with the PMG-ARDL approach, a negative and statistically significant long-term effect of the debt-to-GDP ratio on GDP per capita has been found. This result highlights the importance of sound fiscal policies that support a stable macroeconomic environment and, consequently, sustainable growth.