Has Excessive Public Debt Slowed World Growth?

Anthony J Makin

Published: December 2015


This paper contends that worldwide fiscal excess, as embodied in heightened public debt levels, is central to understanding why global growth has been sub-optimal since the transatlantic crisis. It notes that in the five years before the 2009-10 financial crisis average world economic growth was close to 5 per cent per year, but has since averaged only 3 per cent. The author states that government expenditure spiked notably more in advanced economies in response to the crisis and remains around 9 percent higher as a share of GDP in G20 advanced economies on average than in emerging economies. The paper explores recent literature which focused explicitly on the crowding out effects of fiscal stimulus in contrast to the Keynesian orthodox view. Attention is focussed on the impact of beneficial austerity on growth and also notes that additional government spending on infrastructure without regard to its productivity is risky.



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