Analyzing the Tripartite Relationship Among Public Debt, Economic Growth, and Political Risks: A Panel VAR Approach

Abstract

This study examines the triangular relationship between public debt, economic growth, and political risks, shedding light on the complex underlying dynamics of these factors. Using a Panel Vector Autoregressive (PVAR) model, we analyze this relationship from multiple angles across 117 countries. The study considers the impact of different political regimes and income levels, recognizing the importance of diverse economic and political contexts in shaping these interactions. The results reveal varied responses to public debt based on the political regime, highlighting that authoritarian systems, imperfect democracies, and full democracies exhibit distinct reactions. Additionally, the study underscores the influence of income levels on the relationship between public debt and economic growth. A balanced and comprehensive approach to public debt management is recommended, with an emphasis on political stability, transparency in political institutions, and economic diversification. Policymakers are advised to consider the duration of shocks to promote sustainable economic growth and fiscal health.