Boultzis, E., "Debt and Growth: Friends or Foes? A Political Economy Approach"

Title: "Debt and Growth: Friends or Foes? A Political Economy Approach"

Speaker: Postdoctoral Researcher Elias Boultzis, Department of Economics, Athens University of Economics and Business

Host:  Assistant Professor Kospentaris Ioannis, Department of Economics, Athens University of Economics and Business

Time: 15.30 -17.00

Room:  76, Patission Str., Antoniadou Wing, 3rd floor, Room A36

Attachments:  PDF of Relevant Paper

Abstract: In this paper I discuss the relationship between government debt and growth in small open economies using an overlapping generations’ model with two generations and probabilistic voting. In this context, intergenerational conflict over government policy drives the results of the model. A calibration of the model using data from 20 western democracies verifies that the model is consistent with growth and debt in these countries during the period 1980-2010. The results of the calibration imply that an increase in the political power of the old decreases growth and increases debt both in the short and in the long run. The same is true for an increase in government corruption. Moreover, the calibration indicates a negative relationship between debt to output and growth in the short run. However, shifts in the steady state or differences in parameters between countries might make the identification of this relationship difficult.