The study of the link between debt and growth has been full of debates, both in theory and empirics. However, there is a growing consensus that the relationship is sensitive to the level of debt. The purpose of this paper is to address the question of non-linearity in the long-term relationship between public debt and economic growth. Specifically, the author set out to test if there exists an established “laffer curve” type relationship, where debt contributes to economic growth up to a certain point (maximal threshold) and then starts to have a negative effect on growth afterwards. The overall result supports the claim that public debt may start to be a drag on economic growth if it goes on increasing beyond the level where it would be sustainable.
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