A Living Review: What 70 Studies Say About Public Debt and Growth
Announcing a new research tool for policymakers, journalists, and economists
Over the past few years, public debt has surged across the globe. In the United States, it now hovers around 100% of GDP — levels not seen since World War II. But what do we really know about the relationship between public debt and long-term economic growth?
I’m excited to share the launch of a new web-based research product:
The Impact of Public Debt on Economic Growth: What the Empirical Literature Tells Us
This continuously updated literature review currently surveys 70 empirical studies published between 2010 and 2025 that rigorously examine the debt-growth relationship. It will be updated as new research becomes available. The aim is to provide a single, transparent, and accessible repository of findings for anyone interested in the long-term macroeconomic implications of rising debt burdens.
You can access the full interactive review here: https://www.mercatus.org/research/policy-briefs/impact-public-debt-economic-growth-what-empirical-literature-tells-us
Why a Living Review?
As academic interest in the debt-growth nexus continues to expand, especially in the wake of the COVID-19 fiscal response and the 2021–24 inflation surge, policymakers need current, consolidated insights. This review will be updated twice per year to incorporate new studies as they’re published, so it remains comprehensive, up-to-date, and empirically grounded.
The current review builds on my earlier reviews from 2020 and 2021 by adding dozens of new studies, broadening international coverage, and deepening the discussion of mechanisms and threshold effects.
Key Takeaways from Literature
Of the 70 studies reviewed:
67 studies report that rising public debt negatively impacts economic growth.
Only 3 studies report no negative effect.
Of the 47 studies that quantitatively estimate this effect, 45 find it negative.
These findings reinforce a consistent empirical pattern across time, region, and methodology.
Threshold Effects Are Real (But Varied)
The central debate is no longer whether debt affects growth — but when and how much.
48 studies explicitly tested for a nonlinear threshold, and 42 of those found one.
For advanced economies, the average threshold is around 75–77% of GDP.
This suggests that the U.S. likely crossed its threshold in 2020.
In other words, modest debt levels may be harmless, or even beneficial, but beyond a certain point, the drag becomes measurable and persistent.
The Central Estimate: 1.34 Basis Points per 1% of Debt
Using a meta-regression of 171 quantitative estimates, the central finding is:
A 1 percentage point increase in the public debt-to-GDP ratio reduces real GDP growth by 1.34 basis points, on average.
With U.S. public debt now above the threshold level, this implies an annual growth drag of roughly 0.27 percentage points today. Over time, that adds up, and by 2055 the debt drag could exceed 1 percentage point.
Mechanisms: How Debt Drags Growth
The review also synthesizes the main theoretical channels through which debt affects the economy:
Crowding Out: Government borrowing displaces private investment.
Interest Rate Pressures: Higher debt raises long-term interest rates.
Inflation & Credit Risk Premia: Fear of monetization raises yields and volatility.
Ricardian Equivalence Effects: Anticipated future taxes depress consumption and saving.
Why It Matters
A difference of 1% in growth may sound trivial, but compounded over decades, it has staggering consequences for living standards.
At 3% growth, the economy doubles in 23 years.
At 2%, it takes 35 years.
In practical terms: If U.S. growth had been 1% lower since 1972, today’s Americans would have the same per capita income as Italians.
Small differences in growth rates aren’t academic trivia — they’re the difference between prosperity and stagnation.
Debt Isn’t Always Bad, But It’s Rarely Free
The literature makes clear that the cost of high debt is real, measurable, and rising. The key is context: The type of spending, the macroeconomic environment, and the long-term fiscal path all matter.
But one lesson is clear: For advanced economies, keeping public debt below 80% of GDP isn’t a political talking point, it’s an empirically grounded benchmark.
Explore the Review
Click here to access the full, searchable, and periodically updated version of the living literature review: https://www.mercatus.org/research/policy-briefs/impact-public-debt-economic-growth-what-empirical-literature-tells-us