Modeling the impact of public debt on economic growth in Ukraine

Abstract

The study considers modeling approaches to determine the relationship between the level of public debt and economic growth. Empirical evidence for the positive, neutral, and negative correlation between the indicators arrive in a nonlinear function in the form of inverted U-curve, whose theoretical argumentation is associated with the implementation of the golden rule of public finance. To verify the empirical evidence on the example of Ukraine's economy, the author provides a scenario assessment based on the constructed econometric model of fiscal-monetary interaction. The results of modeling confirm the existence of a relationship that corresponds to a second-order polynomial trend. The maximum level of public debt, above which the GDP rate declines, is 63.8%, and the critical level of public debt, at which the rate of economic growth changes to negative, is 87.4%. As the development of Ukraine's economy is approaching the upper limit of the determined functional entry, to accelerate growth, it is necessary to focus the limited resource of public debt to finance large-scale infrastructure projects with a high capital return.