Non-linear effect of public debt on economic growth: The case of Tunisia

Abstract

This study examines the non-linear effect of public debt on economic growth in Tunisia, making use of the autoregressive distributed lag (ARDL) approach and annual time series data covering the period 1986 to 2019. The results show that public debt has a double impact on economic growth in the long run, which confirms the existence of a non-linear relationship between the two variables in the long run. Thus, they indicate that public debt stimulates growth before contradicting it when it exceeds a certain critical threshold. Indeed, the estimated optimal public debt threshold is 64.4% of GDP. Although the impact of public debt on short-term economic growth is statistically insignificant, this implies that the debt-growth relationship in the short term does not follow a non-linear pattern.

Keywords

• non-linear
• public debt
• economic growth
• ardl