Abstract:

This article builds a cross period model to discuss the relationship between debt and economic growth．The results of theoretical analysis show that，there is an inverse U-shaped relationship between debt and economic growth．Under specific conditions，when the debt ratio below the optimal threshold，debt increasing has a promoting influence on the economic growth，on the contrary，when the debt ratio exceeds that threshold，debt increasing will just put constraints on the economic growth．Based on China’s 1981~2014 time series data，this article builds regression model，validating the inverse U-shaped relationship between public debt and economic growth and finding China’s optimal public debt ratio of recent years is about 47%．The policy implication is that China’s public debt is still within the optimal threshold，although in the long run China’s public debt increasing space is limited，in the short run China’s public debt definitely has increasing capacity for financial policy to bolster Chinese slowing down economy．