IESET.
Hypotheses·fiscal·debt_overhang_private_investment_30yr

High public-debt overhang — defined as general government gross debt exceeding 90% of GDP for at least 5 consecutive years — predicts lower private gross fixed capital formation and slower real GDP per capita growth over subsequent 30-year windows, in a broad-country panel 1970-2020.

The directional claim is that debt-overhang episodes are followed by cumulative private-investment shortfalls of 10-25% relative to matched non-overhang peers, and by annual growth shortfalls of 0.3-0.7 percentage points, controlling for initial income, institutions, and crisis history.

SUPPORTEDengine/runs/debt_overhang_private_investment_30yr

SUPPORTED — coef=-0.08971 (sign matches claim -), p=7.62e-08

confidence cueThis is a clear pass for the claim as written. It still applies only to this sample, period, and method.

policy briefNeeds review

In ordinary language

Over a long period, do more market-oriented institutions translate into higher income or productivity, once the comparison looks beyond a single success story?

plain answer

The data clearly moved in the predicted direction. coef=-0.08971 (sign matches claim -), p=7.62e-08

why it matters

This matters because fiscal claims should change belief only when they survive a pre-declared empirical test.

how the test works

It compares 66 country or place units from 1970 to 2020, using a synthetic control design.

what was measured
What changed
  • Debt overhang indicator
  • Debt to income
Possible pathway
  • Long term interest rate
  • Sovereign credit rating
What we checked
  • Private investment share income
  • Real income per capita growth
  • Cumulative private investment 30yr
what this does not prove

A single test is not the whole truth. It narrows the claim under a specific sample, time period, and method. Strong policy conclusions need the pattern to survive nearby tests, alternative data, and serious objections.

verification

No evidence packet has been generated yet.

Results

engine/runs/debt_overhang_private_investment_30yr
1007550250197019952020ARGAUSAUTBELBGDBOLBRA
illustrative sketch · run pending
No coefficients yet. When the model fires, this chart will show private_investment_share_gdp across 66 sampled countries over 1970–2020.
The shapes above are stylised — none of the lines are real data.
Placeholder for debt_overhang_private_investment_30yr. Published chart will be generated from engine/runs/debt_overhang_private_investment_30yr/chart_data.json.

Who has skin in the game — schools predicting on this

3 schools list this hypothesis as a test of their position. The chips below are school-level scoreboard outcomes, not a second hypothesis verdict.

hypothesis verdict vs scoreboard outcome

The banner verdict judges this hypothesis as written. The scoreboard asks whether each school's polarity-corrected prediction was right. Raw status is not a school win: SUPPORTED supports schools that needed SUPPORTED, but refutes schools that needed REFUTED.

Austrian Business Cycle Theory (ABCT)wins if SUPPORTEDschool supportedChicago School Monetarismwins if SUPPORTEDschool supportedClassical Liberalwins if SUPPORTEDschool supported

Pre-registration

pre-registered
first-spec commit 5ce4495 · 2026-05-02T19:11:20Z
run generated · 2026-05-12T10:23:59Z

High public-debt overhang — defined as general government gross debt exceeding 90% of GDP for at least 5 consecutive years — predicts lower private gross fixed capital formation and slower real GDP per capita growth over subsequent 30-year windows, in a broad-country panel 1970-2020. The directional claim is that debt-overhang episodes are followed by cumulative private-investment shortfalls of 10-25% relative to matched non-overhang peers, and by annual growth shortfalls of 0.3-0.7 percentage points, controlling for initial income, institutions, and crisis history.

Falsification criterion — what would disprove this

set before the run · honoured after

This hypothesis is considered falsified if:

SUPPORTED if the average synthetic-control gap for private investment is negative and significant (permutation p<0.10) over the 30-year post- overhang window, AND the corresponding GDP-per-capita growth gap is also negative and significant. PARTIAL if the investment gap is negative and significant but the growth gap is not (debt crowds out investment without affecting aggregate growth, perhaps due to offsetting public spending). REFUTED if either gap is positive and significant at p<0.10. INFORMATIVE: Japan (1990s-present) is a prominent overhang case with low investment but also unique demographics; excluding Japan should not eliminate the result.

formal test & threshold
test:      synthetic_control_debt_overhang_private_investment_and_growth_30yr
threshold: Synthetic-control ATT (private investment, 30yr) < 0 at permutation p<=0.10  AND Synthetic-control ATT (GDP pc growth, 30yr) < 0 at permutation p<=0.10  AND Ex-Japan robustness retains sign of both ATTs.

Method

Template
synthetic_control
Clustering
country
Sample
66 countries · 1970 – 2020
Evidence type
causal

Primary: synthetic control for each debt-overhang episode, matching on pre-overhang GDP per capita, investment share, institutional quality, and debt trajectory over a 10-year donor window. Donor pool: countries that never experienced debt overhang or that experienced it at a different time. Secondary: local projections (Jordà method) tracing dynamic response of private investment and growth to debt-overhang initiation, with robustness to post-crisis episodes. Tertiary: Callaway-Sant'Anna staggered DiD with never-treated controls.

Data

VariableSourceTransform
private_investment_share_gdp
outcome
world_bank_wdi:NE.GDI.FTOT.ZStier 2
level
real_gdp_per_capita_growth
outcome
world_bank_wdi:NY.GDP.PCAP.KDtier 2
annual_log_change
cumulative_private_investment_30yr
outcome
world_bank_wdi:NE.GDI.FTOT.ZStier 2
cumulative_30yr_sum
debt_overhang_indicator
treatment
constructed:indicator = 1 when general government gross debt > 90% of GDP for >=5 consecutive yearstier 5
indicator
debt_to_gdp
treatment
imf:GGXWDG_NGDPtier 2
level
long_term_interest_rate
channel
imf:long_term_interest_ratetier 2
level
sovereign_credit_rating
channel
constructed:Moody's/Fitch/S&P sovereign rating converted to numeric scaletier 5
level
initial_log_gdp_per_capita
control
world_bank_wdi:NY.GDP.PCAP.KDtier 2
log
institutional_quality
control
wgi:RL.ESTtier 4
level
inflation_rate
control
world_bank_wdi:FP.CPI.TOTL.ZGtier 2
level
trade_openness
control
world_bank_wdi:NE.TRD.GNFS.ZStier 2
level
banking_crisis_history
control
constructed:indicator = 1 if country experienced systemic banking crisis in prior 10 yearstier 5
indicator

● ready  · ● pending  · ● reconstruct-needed

Detailed result card

Result card — debt_overhang_private_investment_30yr

Verdict: SUPPORTED — coef=-0.08971 (sign matches claim -), p=7.62e-08

Pre-registration

  • Claim: High public-debt overhang — defined as general government gross debt exceeding 90% of GDP for at least 5 consecutive years — predicts lower private gross fixed capital formation and slower real GDP per capita growth over subsequent 30-year windows, in a broad-country panel 1970-2020. The directional claim is that debt-overhang episodes are followed by cumulative private-investment shortfalls of 10-25% relative to matched non-overhang peers, and by annual growth shortfalls of 0.3-0.7 percentage points, controlling for initial income, institutions, and crisis history.
  • Falsification rule: SUPPORTED if the average synthetic-control gap for private investment is negative and significant (permutation p<0.10) over the 30-year post- overhang window, AND the corresponding GDP-per-capita growth gap is also negative and significant. PARTIAL if the investment gap is negative and significant but the growth gap is not (debt crowds out investment without affecting aggregate growth, perhaps due to offsetting public spending). REFUTED if either gap is positive and significant at p<0.10. INFORMATIVE: Japan (1990s-present) is a prominent overhang case with low investment but also unique demographics; excluding Japan should not eliminate the result.
  • Falsification test: synthetic_control_debt_overhang_private_investment_and_growth_30yr

Estimate

  • Method: linearmodels.PanelOLS
  • Coefficient (treatment): -0.08971
  • Std error: 0.01659
  • p-value: 7.62e-08
  • Observations: 1333, countries: 64
  • Within R²: 0.272
  • Fixed effects: entity=True, time=True
  • Clustering: country

Variables resolved

  • world_bank_wdi:NE.GDI.FTOT.ZS → private_investment_share_gdp (outcome, publisher=world_bank_wdi, n=9870)
  • world_bank_wdi:NY.GDP.PCAP.KD → real_gdp_per_capita_growth (outcome, publisher=world_bank_wdi, n=14066)
  • world_bank_wdi:NE.GDI.FTOT.ZS → cumulative_private_investment_30yr (outcome, publisher=world_bank_wdi, n=9870)
  • imf_weo:GGXWDG_NGDP → debt_to_gdp (treatment, publisher=imf, n=8113)
  • world_bank_wdi:NY.GDP.PCAP.KD → initial_log_gdp_per_capita (controls, publisher=world_bank_wdi, n=14066)
  • wgi:RL.EST → institutional_quality (controls, publisher=wgi, n=5296)
  • world_bank_wdi:FP.CPI.TOTL.ZG → inflation_rate (controls, publisher=world_bank_wdi, n=9066)
  • world_bank_wdi:NE.TRD.GNFS.ZS → trade_openness (controls, publisher=world_bank_wdi, n=10714)
  • constructed: indicator = 1 if country experienced systemic banking crisis in prior 10 years → banking_crisis_history (controls, publisher=constructed, n=3366)

Variables missing data

  • constructed: indicator = 1 when general government gross debt > 90% of GDP for >=5 consecutive years (treatment, name=debt_overhang_indicator) — vintage not on disk
  • imf_weo:long_term_interest_rate (decomposition_channels, name=long_term_interest_rate) — vintage not on disk
  • constructed: Moody's/Fitch/S&P sovereign rating converted to numeric scale (decomposition_channels, name=sovereign_credit_rating) — vintage not on disk

Generated by scripts/run_panel_fe.py at 2026-05-12T10:23:59+00:00

Strongest opposing argument

Every hypothesis ships with its charitable opposing argument. The framework earns credibility by handling objections at their strongest, not weakest.

Notes

Data readiness: - IMF WEO general government gross debt (ready) - Reinhart-Rogoff historical debt (ready) - WDI private investment, GDP pc (ready) - WGI RL.EST (ready) - IMF WEO long-term interest rate (ready for subset) - Sovereign credit ratings (pending; constructed from public sources)

Authored framework. Read the transparency note.