by Salim Furth
The Heritage Foundation
February 22, 2013
Three teams of economists have separately shown that high government debt has a negative effect on long-term economic growth. When government debt grows, private investment shrinks, lowering future growth and future wages. Estimates across advanced economies show that debt drag reaches large and statistically significant levels as debt grows, with the worst effects occurring after debt reaches 90 percent of gross domestic product (GDP). With U.S. federal, state, and local government debt at 84 percent of GDP and rising, policymakers should begin taking debt drag into account when considering new deficit spending.



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