Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff

We replicate Reinhart and Rogoff (2010A and 2010B) and find that selective exclusion of available data, coding errors and inappropriate weighting of summary statistics lead to serious miscalculations that inaccurately represent the relationship between public debt and GDP growth among 20 advanced economies. Over 1946– 2009, countries with public debt/GDP ratios above 90% averaged 2.2% real annual GDP growth, not −0.1% as published. The published results for (i) median GDP growth rates for the 1946–2009 period and (ii) mean and median GDP growth figures over 1790–2009 are all distorted by similar methodological errors, although the magnitudes of the distortions are somewhat smaller than with the mean figures for 1946–2009. Contrary to Reinhart and Rogoff’s broader contentions, both mean and median GDP growth when public debt levels exceed 90% of GDP are not dramatically different from when the public debt/GDP ratios are lower. The relationship between public debt and GDP growth varies significantly by period and country. Our overall evidence refutes RR’s claim that public debt/GDP ratios above 90% consistently reduce a country’s GDP growth.

Herndon, Ash and Pollin replicate Reinhart and Rogoff and find that coding errors, selective exclusion of available data, and unconventional weighting of summary statistics lead to serious errors that inaccurately represent the relationship between public debt and GDP growth among 20 advanced economies in the post-war period. They find that when properly calculated, the average real GDP growth rate for countries carrying a public-debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not -0:1 percent as published in Reinhart and Rogoff. That is, contrary to RR, average GDP growth at public debt/GDP ratios over 90 percent is not dramatically different than when debt/GDP ratios are lower.

The authors also show how the relationship between public debt and GDP growth varies significantly by time period and country. Overall, the evidence we review contradicts Reinhart and Rogoff's claim to have identified an important stylized fact, that public debt loads greater than 90 percent of GDP consistently reduce GDP growth.

>> Download the paper here1,2

>> "Debt and Growth: A Response to Reinhart and Rogoff" in The New York Times, April 29, 2013

>> Supplemental Technical Critique of Reinhart and Rogoff's "Growth in a Time of Debt"

>> Robert Pollin and Michael Ash's op ed in the Financial Times

>> Data and code files upon which the results are based

>> Image describing the files in the code and data archive

>> Concordance between variable names in the RR working spreadsheet and the HAP data and code

>> Additional spreadsheet with the following columns: country; year; public debt/GDP ratio; public debt/GDP category; real GDP growth. Columns are calculated from data and formulas in the Reinhart and Rogoff working spreadsheet and can be used, e.g., with pivot tables, to replicate the results in RR 2010 and HAP.

>> Updated and more complete data and code package (as of May 17, 2013), as referenced in "Debt and Growth: A Response to Reinhart and Rogoff" in The New York Times, April 29, 2013. Code and data are open-source under the BSD 2-clause license (http://www.tldrlegal.com/l/BSD2). Documentation is here.

>> A sample of the media coverage of the study

1 The paper was updated at 1:35 pm on April 17, with the following corrections:

(1) The notes to Table 3: "Spreadsheet refers to the spreadsheet error that excluded Australia, Austria, Canada, and Denmark from the analysis." is corrected to read: "Spreadsheet refers to the spreadsheet error that excluded Australia, Austria, Belgium, Canada, and Denmark from the analysis."

(2) Page 13: “Thus, in the highest, above-90-percent public debt/GDP, GDP growth of 4.1 percent per year in the 1950-2009 sample declines to only 2.5 percent per year in the 1980-2009 sample” is corrected to read "Thus, in the lowest, 0–30-percent public debt/GDP, GDP growth of 4.1 percent per year in the 1950–2009 sample declines to only 2.5 percent per year in the 1980–2009 sample."

2 The paper was updated at 9:36 am on April 22, with the following changes:

(1) Table 3 has been expanded to show the effect of each of the errors in RR (spreadsheet error, selective year exclusion, and country weighting) separately and the effect of all interactions of the errors. Text in the section "Summary: years, spreadsheet, weighting, and transcription" (p.10) has been updated to describe the expanded table.  No results have changed.

(2) On p. 5, the text:
"Outside the US, the series for some countries do not begin until 1957 and that for Italy is unavailable before 1980. Eight countries are available from 1946, sixteen from 1950, and all countries but Italy and Greece enter the dataset by 1957," has been changed to:
"Outside the US, the series for some countries do not begin until the 1950’s and that for Greece is unavailable before 1970. Nine countries are available from 1946, seventeen from 1951, and all countries but Greece enter the dataset by 1957," and the text "real GDP growth is unavailable for Spain for 1959–1980" has been added.

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