A BEJM Contributions article.

Abstract

The worldwide growth slowdown after 1975 was a major negative fiscal shock; lower growth lowers the present value of tax revenues and primary surpluses and thus makes a given level of debt more burdensome. Most countries failed to adjust to the negative fiscal consequences of the growth implosion and so public debt to GDP ratios exploded. The growth slowdown therefore played an important role in the debt crisis of the middle income countries in the 1980s, the crisis of the Highly Indebted Poor Countries (HIPCs) in the 1980s and 1990s, and the increased public debt burden of industrial countries in the 1980s and 1990s. Econometric tests and fiscal solvency accounting confirm the important role of growth in debt crises. In addition, the HIPCs’ debt problems were worse because they grew more slowly after 1975 than other low income countries due to worse policies.

Submitted: December 12, 2000 · Accepted: January 23, 2001 · Published: February 27, 2001

Originally published in Contributions to Macroeconomics.

Recommended Citation

Easterly, William R. (2001) "Growth Implosions and Debt Explosions: Do Growth Slowdowns Cause Public Debt Crises?," Contributions to Macroeconomics: Vol. 1 : Iss. 1, Article 1.
Available at: http://www.bepress.com/bejm/contributions/vol1/iss1/art1