Novel Government Debt Indicator: Government Debt to Net Wealth of Households
| Authors | |
|---|---|
| Year of publication | 2015 |
| Type | Article in Proceedings |
| Conference | Current Trends in Public Sector Research - the 19th International Conference |
| MU Faculty or unit | |
| Citation | |
| Field | Applied statistics, operation research |
| Keywords | public debt; one-off tax; Net Wealth of Households; Gross Domestic Product; Government Debt/Net Wealth of Households |
| Description | Government debt is one of the most important variables monitored in the European economies of 21th century. Due to Euro Convergence Criteria, it is most often calculated as a ratio of government debt-to-Gross Domestic Product (D/GDP). However, this ratio does not have clear economic interpretation and is difficult to understand for the common voter. In this paper, we suggest a new, more appropriate indicator – Government debt-to-Net Wealth of Households (D/NWH), which is inspired by the one-off wealth tax. Using high quality data from the Czech Statistical Office, Eurostat and Wiener Institut für Internationale Wirtschaftsvergleiche the debt burden imposed on the every Czech household was computed. While in 1995 the D/NWH was less than 7%, it has more than tripled by the end of 2012. If the Czech Republic was to repay its government debt immediately, it would have to impose a one-off tax of a quarter of the every household’s wealth. While it has been argued that the 60% threshold of D/GDP is an artificial ratio introduced by Maastricht Treaty, D/GDP reaching 182% (which is roughly the recent government debt of Greece) would be the critical insolvency level for the Czech Republic. |
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