Publication details

Novel Government Debt Indicator: Government Debt to Net Wealth of Households

Authors

FISCHER Jakub LIPOVSKÁ Hana

Year of publication 2015
Type Article in Proceedings
Conference Current Trends in Public Sector Research - the 19th International Conference
MU Faculty or unit

Faculty of Economics and Administration

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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