Nonlinearities in the Relationship between Debt and Growth: Evidence from Co-Summability Testing

This paper employs novel time series methods to investigate the presence of nonlinearities in the long-run relationship between public debt and growth, analysing annual series for the United States, Great Britain, Japan and Sweden from the 1800s to 2008. We find only limited evidence for a nonlinear long-run relationship in these countries and further cannot support the notion that the equilibrium debt-growth relationship is identical across countries. Both results weaken the case for a common 90% or indeed any common debt/GDP threshold recently popularised by the work of Reinhart and Rogoff (2010) and others.