Among the 47 studies that find nonlinear threshold levels at which debt begins to adversely affect economic growth, mean and median threshold levels can be calculated. The mean threshold level is 74% of GDP, while the median threshold is 73%. If we remove estimates from developing country samples to focus on the threshold level for advanced economies, the mean and median threshold levels are marginally higher, at 75% and 76% respectively. These estimates are largely consistent with prior estimates for advanced countries.That's the money quote from "The Impact of Public Debt on Economic Growth: What the Empirical Literature Tells Us," an ongoing Mercatus Center round-up-cum-meta-analysis of research on, to put it loosely, when tax, spend, and borrow becomes counter-productive.
Understanding the relationship between public debt and economic growth is of paramount importance to both economists and policymakers. High and rising debt levels raise concerns about fiscal sustainability, intergenerational equity, and potential constraints on future policy space. On the other hand, fiscal stimulus funded by debt is often used as a policy tool during economic downturns, particularly in liquidity traps where monetary policy may be constrained. The key policy question, therefore, is not whether public debt is inherently good or bad, but rather under what conditions it becomes harmful to long-run economic performance.Put another way, those policy issues that make teaching macroeconomics a futile struggle between the positive economics of income-expenditure models and the normative economics of policy tradeoffs will not go away. And once public debt, a stock, rises to about three-quarters of gross domestic product, a flow, the anticipated magic multipliers and all the other policy tools lose effectiveness.
The United States Treasury? Currently borrowing, in total, more than the annual gross domestic product. What cannot go on forever, won't.
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