Government Net Worth and Economic Growth: Cross-Country Panel Evidence

• In Event: Performance and its Discontents: Contemporary Challenges in Public Management

Abstract

Governments’ fiscal capacity depends not only on budget balances and debt levels but also on the strength and credibility of public balance sheets. This study examines whether improvements in general government net worth are associated with subsequent GDP per capita growth and whether this association varies with accounting transparency and fiscal constraints. Using IMF Government Finance Statistics for 28 countries over 1993 - 2024, we estimate country and year fixed effects models. Two-way fixed-effects analyses show that net worth improvement is positively associated with growth in countries with greater accounting transparency and more binding fiscal constraints, including non-G20, low-net-worth, and highly indebted countries. Additionally, we find improvements in net worth are also associated with lower implicit interest rates on government debt, suggesting that stronger public balance sheets enhance fiscal credibility, improve financing conditions, and expand policy capacity. The findings suggest that credible public balance sheet information is particularly valuable where fiscal constraints are binding, and they identify government net worth as a useful complement to conventional debt and deficit indicators.

Authors

• Bong Hwan Kim, Seoul National University
  Non-Presenting Co-Author

• Hae In Lee, Seoul National University
  Presenting Author