Can Shifts in Public Debt Structure Influence Economic Growth of Advanced Economies

Since the Great Recession, dynamics of public debt have forced many politicians to choose whether they will boost the economic growth or they will deal with a high public debt to GDP ratio. Measures able to lower the debt and increase the economic growth simultaneously seems to be difficult to find. Following the most intuitional case of the consolidation when fiscal authority increases taxation or cuts public spending could not lead to better perform. If the debt declines slower than the GDP, the debt quota will rise anyway. From very simple example one can see an interaction of the public debt and the economic performance especially during economic downturns. Then, it is important to look for measures that can enhance the growth and are, at least, the debt neutral. Therefore, the aim of the contribution is to examine whether the level neutral change in structure of the public debt could have desirable effect on the economic growth of advanced economies. There are some theoretical linkages which suggest that the debt structure can influence the growth rates. Arnold's et al. [2] methodology enables to estimate effect of internal debt structure change which has no direct effect on the level of public debt. The dataset covers period from 2000 to 2015 of all OECD countries of which data are available for the econometric analysis (up to 24). Hence the panel data regression is employed to estimate results and 3 debt decompositions of the public debt are made. Namely, i) by the original maturity of debt instruments, ii) by the currency which is used to issue debt, iii) by the residency of creditors. The results suggest that the most important shift seems to be from domestic to foreign creditors which is associated with higher economic growth rates. Similar but not as strong effects is the shift from domestic to foreign currency and finally the shift from long term debt to short term debt instruments.