Does Excessive Sovereign Debt Really Hurt Growth? A Critique of 'This Time is Different', by Reinhart and Rogoff

The Levy Economics Institute Working Paper No. 603

22 Pages Posted: 22 Apr 2013

See all articles by Yeva Nersisyan

Yeva Nersisyan

Franklin and Marshall College

L. Randall Wray

University of Missouri at Kansas City; Bard College - The Levy Economics Institute

Date Written: June 21, 2010

Abstract

The worst global downturn since the Great Depression has caused ballooning budget deficits in most nations, as tax revenues collapse and governments bail out financial institutions and attempt countercyclical fiscal policy. With notable exceptions, most economists accept the desirability of expansion of deficits over the short term but fear possible long-term effects. There are a number of theoretical arguments that lead to the conclusion that higher government debt ratios might depress growth. There are other arguments related to more immediate effects of debt on inflation and national solvency. Research conducted by Carmen Reinhart and Kenneth Rogoff is frequently cited to demonstrate the negative impacts of public debt on economic growth and financial stability. In this paper we critically examine their work. We distinguish between a nation that operates with its own floating exchange rate and nonconvertible (sovereign) currency, and a nation that does not. We argue that Reinhart and Rogoff’s results are not relevant to the case of the United States.

Keywords: Government Debt, Government Deficit, Sovereign Default, Reinhart and Rogoff, Economic Growth, Inflation, Modern Money

JEL Classification: E60, E61, E62, E64, E69, E31, E32, O40

Suggested Citation

Nersisyan, Yeva and Wray, L. Randall, Does Excessive Sovereign Debt Really Hurt Growth? A Critique of 'This Time is Different', by Reinhart and Rogoff (June 21, 2010). The Levy Economics Institute Working Paper No. 603, Available at SSRN: https://ssrn.com/abstract=2254649 or http://dx.doi.org/10.2139/ssrn.2254649

Yeva Nersisyan (Contact Author)

Franklin and Marshall College ( email )

415 Harrisburg Pike
Lancaster, PA 17603
United States

L. Randall Wray

University of Missouri at Kansas City ( email )

5100 Rockhill Road
Kansas City, MO 64110-2499
United States

Bard College - The Levy Economics Institute

Blithewood
Annandale-on-Hudson, NY 12504-5000
United States

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