Abstract
This article assesses the relationship between public debt and economic growth in Brazil between 2002Q4 and 2020Q4. The Autoregressive Threshold estimations suggest a tipping point for the country’s Gross Debt to GDP ratio of 84% of GDP, and for the Net Debt to GDP ratio of 59% of GDP, beyond which public indebtedness starts to put negative pressure on GDP growth. Non-linear effects of the debt to GDP ratio on output are also estimated, via Markov Switching Regime, for different levels of the Debt/GDP ratio. The results indicate that the transition from a low to a high debt to GDP ratio regime causes a reduction in the Brazilian GDP growth rate.
Keywords:
Threshold Autoregressive; Markov Switching Regime; public debt; GDP growth