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The impact of public debt on economic growth: an empirical study of Mexico (1994–2016)

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Author: Vaca, Jesús - Vaca Medina, Gustavo - Mora Pérez, César Omar UN symbol.: LC/PUB.2020/4-P p. 167-180; grafs., tabls. April 2020

Description

Following on from recent literature on the same subject, this paper analyses the impact of public debt on economic growth in Mexico between 1994 and 2016, against a global macroeconomic backdrop of sharp rises in public sector debt indicators, owing to expansionary fiscal strategies adopted after the 2007–2008 crisis. The main objectives of this study are to determine whether the relationship between these two variables has followed a non-linear path in the form of an inverted “U”, and to find the threshold beyond which increases in debt generate marginal decreases in growth. Using a dynamic model, a non-linear inverted U-shaped relationship is demonstrated, and the threshold in the debt-to-GDP ratio is found to be 27%.