By David Gaffen
NEW YORK, April 16 One of the key intellectual
touchstones in the move towards government austerity efforts
around the world may have been incorrect in its conclusions due
in part to spreadsheet coding errors, researchers said on
A study by eminent Harvard economists Carmen Reinhart and
Kenneth Rogoff first presented in 2008 said a country's gross
domestic product growth begins to slow once its debt-to-GDP
ratio reaches at least 90 percent. The research has been cited
by officials in the United States, the European Union and
elsewhere as justification for tackling deficits.
But researchers at the University of Massachusetts at
Amherst, in a new study, say that the average real growth rate
for countries with a public debt to GDP ratio of more than 90
percent "is actually 2.2 percent, not minus 0.1 percent as
published in Reinhart and Rogoff."
"Coding errors, selective exclusion of available data, and
unconventional weighting of summary statistics lead to serious
errors that inaccurately represent the relationship between
public debt and GDP growth among 20 advanced economies in the
post-war period," wrote the authors, Thomas Herndon, Michael Ash
and Robert Pollin.
Reinhart and Rogoff, who said they had only just received
the study, defended their original findings.
"Of course much further research is needed as the data we
developed and is being used in these studies is new," they said
in a joint response by email. "Nevertheless, the weight of the
evidence to date - including this latest comment - seems
entirely consistent with our original interpretation of the
Pollin told Reuters that the purpose of their work was not
to prove that public debt levels did not matter. Rather it was
to counter the idea that there was some sort of general rule -
the Reinhart-Rogoff 90 percent threshold - "and once you go over
that, you go over the abyss," he said.
Reinhart and Rogoff's work was influential in the austerity
debate in recent years, as some governments that saw growth slow
and debt rise responded with spending reductions and higher
taxes, which in some cases, such as the United Kingdom, have
U.S. Senator John Cornyn, a fiscally conservative
Republican, cited the Reinhart and Rogoff finding as he
questioned Treasury Secretary Jack Lew at a hearing last week
about the impact of the large U.S. deficit on economic growth.
And financial leaders of the world's 20 biggest economies
said they will consider at a meeting later this week a proposal
to cut their public debt over the longer term to well below 90
percent of gross domestic product, according to a document
prepared for the meeting obtained by Reuters.
In February, European Commissioner Olli Rehn expressed his
concern with high debt levels in the European Union, referencing
"serious academic research" that points to the 90 percent
threshold that causes slow growth.
Former U.S. vice presidential candidate Paul Ryan,
Republican congressman from Wisconsin, has cited these
statistics in the past. He said in a statement before the House
Committee on the Budget in June 2011 that "economists who have
studied sovereign debt tell us that letting total debt rise
above 90 percent of GDP creates a drag on economic growth."