Debt and growth: Is there a constant tipping point?

This paper highlights the crucial role of a time-varying threshold effect of public debt on economic growth. Our contribution is twofold. First, we extend the constant-threshold regression kink model of Hansen (2017) by allowing for a time-varying, state-dependent threshold. Second, we apply our model to investigate the effect of debt on growth, using data from the U.S. over the period of 1791-2009. Our empirical results clearly support a nonlinear debt-threshold effect and the threshold is time-varying and state-dependent.