Review of literature

5 
Yamin, I., Al_Kasasbeh, O., Alzghoul, A., Alsheikh, G. (2023) 
The Influence of Public Debt on Economic Growth: a Review of Literature
 
& Rodrigues, 2001). Therefore, according to the Barro-Ricardo Equivalence Theory, 
government indebtedness cannot be utilised as an economic stimulant (Barro, 1989). 
Negative Impact of Public Debt on Economic Growth: A Theoretical 
There is also a theoretical view that purports the impact of public debt on economic 
growth to be negative. This argument asserts that the REH does not hold and that real 
macroeconomic variables are negatively affected by public debt. The debt overhang concept 
explains specifically and fundamentally the negative impact of government debt on economic 
growth. The debt overhang hypothesis, initially proposed by Myers (1977), contends that the 
buildup of governmental debt, owing to fiscal deterioration, affects the private sector's ability 
to make optimum future investment decisions (Reinhart et al., 2012). This theory is backed by 
several traditional growth models, primarily in a neoclassical and endogenous environment, 
which claim that public borrowing weakens the financial discipline of the budget process and 
raises future tax burdens (Diamond, 1965; Meade, 1958; Modigliani, 1961). According to 
Diamond (1965), the level and changes in taxes due to domestic and foreign government 
borrowing have a negative impact on gross capital stock creation. 
Positive Impact of Public Debt on Economic Growth: A Theoretical 
There is also a body of theoretical literature that emphasises the significance of public 
debt in the economic growth process of a country, primarily backed by Adolf Wagner's "Law 
of increasing state activity", the fiscal multiplier impact of Keynesians, and conventional theory 
on public debt. The conventional theory’s explanation for the favourable link between public 
debt and economic growth is that the government needs to borrow from international financial 
and capital markets to make up for the difference between domestic investment and savings 
(Pattillo, Poirson, & Ricci, 2002). In contrast, the Keynesian perspective on the positive link 
between public debt and economic growth holds that deficit-financed government expenditure 
has a more favourable multiplier effect on the economy than tax-financed government spending 
(Kasasbeh, 2021). The Keynesian theory is that a rise in public sector expenditure (public debt) 
may promote domestic economic activity and, consequently, attract private investment 
(Elmendorf & Mankiw, 1999). Elmendorf and Mankiw (1999) noted that by introducing fresh 
financial resources into the economy, foreign public debts will stimulate aggregate demand and 
promote a rise in national output in the short term. In the literature, Delong and Summers 
(2012), Greiner (2006), and Gulde, Pattillo, and Christensen vouch for the favourable effect of 

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Intern. Journal of Profess. Bus. Review. | Miami, v. 8 | n. 4 | p. 01-11 | e01772 | 2023.