Up to date literature review on optimal public debt and economic growth

Abstract

This is a collection of notes on sovereign debt. The goal is to understand the literature on sovereign debt, and to understand the role of sovereign debt in the macroeconomy. Sovereign debt is a fascinating part of the international economics literature, and is becoming more and more relevant today: the first strand of the literature begun after the 1970s series of defaults afflicting South American countries, and the literature matured significantly immediately after the 2008-2009 European debt crisis. Since then, great leaps foreword have been made, and at a time of increased interest rates, high indebtedness and risky geoeconomic circumstances, further development in the literature is to be expected and promoted. The paper surveys the theoretical litera- ture since the seminal work of Eaton and Gersovitz (1981), and includes most major work on the matter, including researchers like Christina Arellano, Enrique Mendoza, D’Erasmo and others, and the empirical literature with a specific focus on the strand of literature that investigates the non-linear negative relationship of debt and growth proposed by Reinhart and K. S. Rogoff (2010).