Government Debt and Economic Growth: Is the net government debt important?

This dissertation investigates the relationship between public debt and economic growth, focusing on the role of net government debt. While gross debt has traditionally been the primary indicator in fiscal analysis, net debt — which accounts for government financial assets — may provide a more accurate representation of a country’s fiscal position. Using a panel dataset of 196 countries from 1980 to 2024, this study employs linear and nonlinear panel regression models to evaluate the impact of both gross and net debt on 2 different indicators of economic performance: real gross domestic product (GDP) per capita and gross national income (GNI) per capita, using annual, five-year fixed and five-year forward moving average growth rates. The results indicate that gross debt is a more robust and consistent predictor of economic growth, particularly in GDP-based models. Net debt shows weaker and less stable empirical associations, especially in GNI-based models. The findings highlight the importance of country-specific fiscal frameworks and caution against the use of universal debt thresholds in policy formulation. This research contributes to the ongoing debate on debt sustainability and offers insights for more nuanced fiscal policy strategies.