Empirical research has found that at moderate levels debt can improve growth, but at high levels (thresholds somewhere between 75% and 100%) it can become damaging (if the high ratio isn’t addressed and becomes persistent)—the debt becomes a drag on economic growth. (See the 2011 study “The Real Effects of Debt,” the 2013 study “Does High Public Debt Consistently Stifle Economic Growth?” the 2020 study “Debt and Growth: A Decade of Studies” and the 2021 studies “The Impact of Public Debt on Economic Growth” and “Public Debt and Economic Growth: Panel Data Evidence for Asian Countries.”)
The explanations for the negative economic impact include: higher interest rates (investors, particularly foreign investors, may demand an increased risk premium), higher taxes (which lower incomes), restraints on the future ability to provide countercyclical fiscal policy to…
