Debt-to-GDP ratio

{{Main|List of countries by government debt}}

File:Gdp to debt ratio.svg

[[File:European debt to GDP ratios.webp|thumb|upright=1.6|European debt to GDP ratios

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{{legend-line|#001489 solid 3px|Greece }}

{{legend-line|#CD212A solid 3px|Italy }}

{{legend-line|#F1BF00 solid 3px|Spain }}

{{legend-line|#046A38 solid 3px|Portugal }}

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{{legend-line|#970E53 solid 3px|France }}

{{legend-line|#FF8200 solid 3px|Ireland }}

{{legend-line|#000000 solid 3px|Germany }}

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According to the IMF World Economic Outlook Database (April 2021),International Monetary Fund: [https://www.imf.org/en/Publications/WEO/weo-database/2021/April World Economic Outlook DatabaseGeneral government gross debt(Percent of GDP)] {{Webarchive|url=https://web.archive.org/web/20210407050829/https://www.imf.org/en/Publications/WEO/weo-database/2021/April |date=2021-04-07 }} the level of Gross Government debt-to-GDP ratio in Canada was 116.3%, in China 66.8%, in India 89.6%, in Germany 70.3%, in France 115.2% and in the United States 132.8%.

File:Debt to GDP.webp

{{legend|#FFD932|State and local debt to GDP}}

{{legend|#EE220C|Federal debt to GDP}}

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At the end of the 1st quarter of 2021, the United States public debt-to-GDP ratio was 127.5%.[https://fred.stlouisfed.org/series/GFDEGDQ188S Federal Debt: Total Public Debt as Percent of Gross Domestic Product] {{Webarchive|url=https://web.archive.org/web/20170220171902/https://fred.stlouisfed.org/series/GFDEGDQ188S |date=2017-02-20 }} Federal Bank of St. Louis.

Two-thirds of US public debt is owned by US citizens, banks, corporations, and the Federal Reserve Bank;

{{cite news

|url=https://www.nytimes.com/imagepages/2011/07/19/business/2110719_yuan_graphic.html?ref=business

|work=The New York Times

|date=19 July 2011

|title=America's Foreign Creditors

}} approximately one-third of US public debt is held by foreign countries – particularly China and Japan. In comparison, less than 5% of Italian and Japanese public debt is held by foreign countries.

Debt-to-GDP measures the financial leverage of an economy.{{Citation needed|date=August 2018}}

One of the Euro convergence criteria was that government debt-to-GDP should be below 60%.{{Cite web |date=2020-07-10 |title=Convergence criteria |url=https://www.ecb.europa.eu/ecb/orga/escb/html/convergence-criteria.en.html |access-date=2022-11-26 |website=European Central Bank |language=en}}

According to these two institutions, external debt sustainability can be obtained by a country "by bringing the net present value (NPV) of external public debt down to about 150 percent of a country's exports or 250 percent of a country's revenues".{{Cite web|url=https://www.imf.org/external/np/hipc/2001/lt/042001.pdf|title=The Challenge of Maintaining Long-Term External Debt Sustainability|website=World Bank and International Monetary Fund|url-status=live|archive-url=https://web.archive.org/web/20080408192556/http://www.internationalmonetaryfund.com/external/np/hipc/2001/lt/042001.pdf|archive-date=2008-04-08}} High external debt is believed to have harmful effects on an economy.{{cite journal |last=Bivens |first=L. Josh |date=December 14, 2004 |url=http://www.epinet.org/Issuebriefs/203/ib203.pdf |title=Debt and the dollar |archive-url=https://web.archive.org/web/20041217041437/http://www.epinet.org/Issuebriefs/203/ib203.pdf |archive-date=December 17, 2004 |journal=EPI Issue Brief |publisher=Economic Policy Institute |number=203 |access-date=July 8, 2007 |at=p. 2, "US external debt obligations"}} The United Nations Sustainable Development Goal 17, an integral part of the 2030 Agenda has a target to address the external debt of highly indebted poor countries to reduce debt distress.{{Cite web|title=Goal 17 {{!}} Department of Economic and Social Affairs|url=https://sdgs.un.org/goals/goal17|access-date=2020-09-26|website=sdgs.un.org|archive-date=2020-09-22|archive-url=https://web.archive.org/web/20200922124356/https://sdgs.un.org/goals/goal17|url-status=live}}

In 2013 Herndon, Ash, and Pollin reviewed an influential, widely cited research paper entitled, "Growth in a Time of Debt",{{cite news|title=How a student took on eminent economists on debt issue - and won|date=18 April 2013|first=Edward|last=Krudy|url=https://www.reuters.com/article/us-global-economy-debt-herndon-idUSBRE93H0CV20130418|work=Reuters|access-date=5 July 2021|archive-date=26 January 2021|archive-url=https://web.archive.org/web/20210126125058/https://www.reuters.com/article/us-global-economy-debt-herndon-idUSBRE93H0CV20130418|url-status=live}} by two Harvard economists Carmen Reinhart and Kenneth Rogoff. Herndon, Ash and Pollin argued that "coding errors, selective exclusion of available data, and unconventional weighting of summary statistics lead to serious errors that inaccurately represent the relationship between public debt and GDP growth among 20 advanced economies in the post-war period".{{cite journal|journal=PERI Working Paper Series|issue=322|url=http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_301-350/WP322.pdf |title=Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff |first1=Thomas |last1=Herndon |first2=Michael |last2=Ash |first3=Robert |last3=Pollin |date=15 April 2013 |publisher=Political Economy Research Institute, University of Massachusetts Amherst |access-date=18 April 2013 |url-status=dead |archive-url=https://web.archive.org/web/20130418125357/http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_301-350/WP322.pdf |archive-date=18 April 2013}}{{cite web |url=http://blogs.marketwatch.com/thetell/2013/04/16/the-spreadsheet-error-in-reinhart-and-rogoffs-famous-paper-on-debt-sustainability/ |title=The spreadsheet error in Reinhart and Rogoff's famous paper on debt sustainability |first=Steve |last=Goldstein |website=MarketWatch |date=April 16, 2013 |access-date=April 18, 2013 |archive-date=November 29, 2014 |archive-url=https://web.archive.org/web/20141129014051/http://blogs.marketwatch.com/thetell/2013/04/16/the-spreadsheet-error-in-reinhart-and-rogoffs-famous-paper-on-debt-sustainability/ |url-status=dead }} Correcting these basic computational errors undermined the central claim of the book that too much debt causes recession.{{cite news | first = Ruth | last = Alexander | title = Reinhart, Rogoff... and Herndon: The student who caught out the profs | date = 19 April 2013 | url = https://www.bbc.co.uk/news/magazine-22223190 | work = BBC News | access-date = 20 April 2013 | archive-date = 20 April 2013 | archive-url = https://web.archive.org/web/20130420051732/http://www.bbc.co.uk/news/magazine-22223190 | url-status = live }}{{cite web |url=http://www.cepr.net/index.php/blogs/beat-the-press/how-much-unemployment-was-caused-by-reinhart-and-rogoffs-arithmetic-mistake |title=How Much Unemployment Was Caused by Reinhart and Rogoff's Arithmetic Mistake? |publisher=Center for Economic and Policy Research |date=April 16, 2013 |access-date=April 18, 2013 |archive-date=April 19, 2013 |archive-url=https://web.archive.org/web/20130419112713/http://www.cepr.net/index.php/blogs/beat-the-press/how-much-unemployment-was-caused-by-reinhart-and-rogoffs-arithmetic-mistake |url-status=live }} Rogoff and Reinhardt claimed that their fundamental conclusions were accurate, despite the errors.{{cite news|url=http://blogs.ft.com/money-supply/2013/04/16/reinhart-rogoff-initial-response|date=16 April 2013|title=Reinhart-Rogoff Initial Response|first=Robin|last=Harding|newspaper=Financial Times|access-date=25 April 2013|archive-date=21 April 2013|archive-url=https://web.archive.org/web/20130421135430/http://blogs.ft.com/money-supply/2013/04/16/reinhart-rogoff-initial-response/|url-status=live}}{{cite news|url=https://www.theguardian.com/business/economics-blog/2013/apr/17/rogoff-reinhart-defend-debt-study|title=Rogoff and Reinhart defend their numbers|first=Phillip|last=Inman|date=April 17, 2013|work=The Guardian|access-date=April 18, 2013|archive-date=October 18, 2013|archive-url=https://web.archive.org/web/20131018040909/http://www.theguardian.com/business/economics-blog/2013/apr/17/rogoff-reinhart-defend-debt-study|url-status=live}}

There is a difference between external debt denominated in domestic currency, and external debt denominated in foreign currency. A nation can service external debt denominated in domestic currency by tax revenues, but to service foreign currency debt it has to convert tax revenues in the foreign exchange market to foreign currency, which puts downward pressure on the value of its currency.

{{Further|Government budget balance}}

The change of debt-to-GDP ratio can be represented as:

$$\backslash frac\{B\_t\}\{Y\_t\}\; -\; \backslash frac\{B\_\{t-1\}\}\{Y\_\{t-1\}\}=(r-g)\backslash left(\backslash frac\{B\_\{t-1\}\}\{Y\_\{t-1\}\}\backslash right)+\backslash left(\backslash frac\{G\_t-T\_t\}\{Y\_t\}\backslash right)$$

, where$\backslash frac\{B\_t\}\{Y\_t\}$ is the debt-to-GDP at the end of the period {{var|t}}, and $\backslash frac\{B\_\{t-1\}\}\{Y\_\{t-1\}\}$ is the debt-to-GDP ratio at the end of the previous period ({{var|t}}−1). The left side of the equation shows the change in the debt-to-GDP ratio. The right hand side of the equation separates the effect of real interest rate $r$ and economic growth $g$ on previous debt-to-GDP, and the new debt or government budget balance-to-GDP ratio$\backslash frac\{G\_t-T\_t\}\{Y\_t\}$.{{Citation needed|date=August 2018}}

If the government has the ability of money creation, and therefore monetizing debt the change in debt-to-GDP ratio becomes:

$$\backslash left(\backslash frac\{B\_t\}\{Y\_t\}\; -\; \backslash frac\{B\_\{t-1\}\}\{Y\_\{t-1\}\}\backslash right)=(r-g)\backslash left(\backslash frac\{B\_\{t-1\}\}\{Y\_\{t-1\}\}\backslash right)+\backslash left(\backslash frac\{G\_t-T\_t\}\{Y\_t\}\backslash right)-\backslash left(\backslash frac\{M\_t\}\{Y\_t\}-\backslash frac\{M\_\{t-1\}\}\{Y\_\{t-1\}\}\backslash right)$${{Citation needed|date=August 2018}}

The term $\backslash frac\{M\_t\}\{Y\_t\}-\backslash frac\{M\_\{t-1\}\}\{Y\_\{t-1\}\}$ is the change in money supply-to-GDP ratio. The effect that an increase in nominal money balances has on seigniorage is ambiguous, as while it increases the amount of money within the economy, the real value of each unit of money decreases due to inflationary effects. This inflationary effect from money printing is called an inflation tax.{{cite book|url=https://books.google.com/books?id=HSVakrh8TToC&q=seigniorage+macroeconomics&pg=PA246 |title=An Encyclopedia of Macroeconomics|first1=Brian |last1=Snowdon|first2=Howard R. |last2=Vane |date=11 April 2018 |publisher=Edward Elgar |isbn=9781840643879 |page=274 |access-date=11 April 2018 |via=Google Books}}

• Debt crisis
• European debt crisis
• Debt ratio, for companies
• Debt-to-income ratio, for households
• Deficit spending
• Economic bubble
• Heavily indebted poor countries
• Leverage (finance)
• List of countries by external debt
• List of countries by government budget
• List of sovereign states by tax revenue to GDP ratio
• Unfunded mandate
• Pensions crisis

{{Commons category}}

{{Reflist}}

{{Debt}}

{{Finance country lists}}

Category:Debt-to-GDP ratio