Public Debt and Economic Growth

John Cochrane on the Mechanics of Debt Sustainability (2012 video)

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While the controversy surrounding Reinhart & Rogoff (2010) paper continues unabated, it is worth noting that a more recent article (more of a survey article) by the same authors provides a relatively nuanced look at the relationship between public debt overhang and economic growth:

Reinhart, Carmen M., Vincent R. Reinhart, and Kenneth S. Rogoff. 2012. "Public Debt Overhangs: Advanced-Economy Episodes since 1800." Journal of Economic Perspectives, 26(3): 69-86.

Abstract:

We identify the major public debt overhang episodes in the advanced economies since the early 1800s, characterized by public debt to GDP levels exceeding 90 percent for at least five years. Consistent with Reinhart and Rogoff (2010) and most of the more recent research, we find that public debt overhang episodes are associated with lower growth than during other periods. The duration of the average debt overhang episode is perhaps its most striking feature. Among the 26 episodes we identify, 20 lasted more than a decade. The long duration belies the view that the correlation is caused mainly by debt buildups during business cycle recessions. The long duration also implies that the cumulative shortfall in output from debt overhang is potentially massive. These growth-reducing effects of high public debt are apparently not transmitted exclusively through high real interest rates, as in eleven of the episodes, interest rates are not materially higher.

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Some folks on the right have used the above study to analyze the US situation:

How the United States’ High Debt Will Weaken the Economy and Hurt Americans by

Romina Boccia (Heritage Foundation Backgrounder Piece)