IMF Working Papers

Government Debt and Growth: The Role of R&D

By Can Sever

February 7, 2025

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Format: Chicago

Can Sever. "Government Debt and Growth: The Role of R&D", IMF Working Papers 2025, 036 (2025), accessed March 15, 2025, https://doi.org/10.5089/9798229001090.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Economic growth in the advanced economies (AEs) has been slowing down since the early 2000s, while government debt ratios have been rising. The recent surge in debt at the onset of the Covid-19 pandemic has further intensified concerns about these phenomena. This paper aims to offer insight into the high-debt low-growth environment in AEs by exploring a causal link from government debt to future growth, specifically through the impact of debt on R&D activities. Using data from manufacturing industries since the 1980s, it shows that (i) government debt leads to a decline in growth, particularly in R&D-intensive industries; (ii) the differential effect of government debt on these industries is persistent; and (iii) more developed or open financial systems tend to mitigate this negative impact. These findings contribute to our understanding of the relationship between government debt and growth in AEs, given the role of technological progress and innovation in economic growth.

Subject: Aging, Economic sectors, Financial markets, Financial sector development, Manufacturing, Population and demographics, Production, Productivity, Public debt

Keywords: Affect tax dynamics, Aging, Debt level, Economic growth, Economic growth in the advanced economies, Financial development, Financial sector development, Fiscal policy, Global, Government debt, Impact of debt, Innovation, Manufacturing, Productivity, R&D, R&D activity

Publication Details

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