Well, remember one of my previous articles about the problems government debt can cause? That was for Europe alone. Well the World Bank has extended it further to more countries. This new paper supports the results of the European Central Bank publication.
In a paper by Mehmet Caner, Thomas Grennes and Fritzi Koehler-Geib entitle, "Finding the tipping point -- when sovereign debt turns bad," the point of threshold beyond which public debt starts to negatively affects growth is 77% debt-to-GDP ratio. This is just about the range reported in yesterday's paper. The threshold is even worst in developing countries--64% debt-to-GDP ratio:
"[The] study [is] based on a yearly dataset of 101 developing and developed economies spanning a time period from 1980 to 2008. The estimations establish a threshold of 77 percent public debt-to-GDP ratio. If debt is above this threshold, each additional percentage point of debt costs 0.017 percentage points of annual real growth. The effect is even more pronounced in emerging markets where the threshold is 64 percent debt-to-GDP ratio. In these countries, the loss in annual real growth with each additional percentage point in public debt amounts to 0.02 percentage points."
And the worst part is, based on their study, the cumulative effect on real GDP could be substantial.
'Nuff said.