The Impact of Public Debt on Economic Growth: What the Empirical Literature Tells Us

By Jack Salmon of Mercatus. Excerpt:

"This survey has reaffirmed a clear and consistent empirical finding: Higher public debt levels are associated with slower economic growth, particularly when debt ratios exceed a critical range. While the precise threshold varies across studies and contexts, the bulk of the evidence places it between 75 and 80% of GDP for advanced economies—a level that the United States has materially exceeded since 2020. This matters, not because debt is inherently destructive, but because its long-run accumulation imposes tangible costs: reduced private investment, upward pressure on interest rates, and heightened inflation and credit risk premia.

Moreover, the meta-analytic estimate indicating a 3.3 basis point (0.33%) decline in growth for each additional percentage point of debt-to-GDP above this threshold implies a cumulative drag that compounds meaningfully over time. Even seemingly modest reductions in growth have profound implications for future living standards, economic resilience, and fiscal space.

The evidence underscores the need for strategic fiscal prudence, especially in non-recessionary periods. Policymakers should avoid interpreting low borrowing costs as a permanent license to expand debt without consequence. Instead, the central question should be: Are today’s deficits delivering returns that justify tomorrow’s drag on growth?"