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Public debt and economic growth are two issues of major concern in the debate about economic policy. Since the mid-1970s most OECD countries have experienced lasting budget deficits and, as a consequence, rising debt to GDP ratios. In the EU’s largest economy, Germany, public debt exploded in the years following the reunification; and in Asia’s largest economy, Japan, the ratio of debt to GDP doubled during the 1990s. Remarkably, in both countries, Germany and Japan, economic growth declined dramatically from the 1970s to the 1990s. All this contrasts to the US, where high deficits during the 1980s have turned into balanced budgets and even surpluses at the end 1990s, and growth rates have remained more or less stable.