Public debt and economic growth in Spain, 1851-2013

Resumen

In this paper we investigate the long-run relationship between public debt and economic growth in the Spanish economy for the period 1851-2013. We develop a cliometric analysis of the debt-growth nexus adopting linear and nonlinear specifications and using novel methods from the time-series literature. We find some support for a negative relationship between public debt and longrun growth, but no clear evidence of a debt threshold. The estimate of long-run elasticity between both variables in a one-break model shows a tendency to decrease over time from a non-significant 0.011 to a -0.070, indicating that a 10 percentage increase in the public debt-to-GDP ratio is associated with 0,70 percentage points lower real economic growth. Indeed, we find for the first subsample (1851-1939) either “decoupling” or “saturation”, while in the second subsample (1940-2013) the long-run elasticity coefficient becomes negative and significant