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posted on 21 June 2016

Alternative Recipes For Measuring Government Indebtedness

from the Chicago Fed

-- this post authored by by Daniel A. Dias and Mark L. J. Wright,

According to Eurostat, the Greek government owed €317 billion in debt at the end of 2014. This is equivalent to more than 177% of gross domestic product (GDP) or 387% of tax revenue, and amounts to almost €30,000 per person. This seems like a very large sum. For comparison, of the other highly indebted European countries that received financial assistance, Portuguese government debt amounted to 130% of GDP, while Irish government debt amounted to 110% of GDP.

Plausible alternative measures of indebtedness suggest that Greece is anywhere from as much as 50% more indebted to as little as half as indebted as either Portugal or Ireland.

As a result of these large debt numbers, there have been increasing calls for debt relief to be offered to Greece and, in some cases, also to the other highly indebted countries of Europe. For example, the International Monetary Fund (IMF) has recently announced that it considers Greek debt unsustainable. Rogoff also argues that Greek debt is unsustainable and has advocated a wider European debt relief effort. On the other hand, wider debt relief found little support in a recent symposium of 30 economists, and numerous commentators have pointed to the fact that Greece's debt has been issued at low interest rates and at long maturities to argue that Greece's debt is sustainable. Especially provocatively, some commentators and investors have argued that, if measured under International Public Sector Accounting Standards (IPSAS), Greece's debt could amount to as little as 70% of GDP.

Is Greece more or less indebted than either Portugal or Ireland? Which of the three countries is most burdened by its debt? In our recent research, we have argued that in order to obtain answers to these questions it is necessary to look closely at statistics on government indebtedness and the process by which these statistics have been constructed. We have also proposed a number of measurement changes for sovereign indebtedness and shown how different statistics can give at times a radically different impression as to indebtedness patterns throughout the developing world.

[click on image below to continue reading]

Source: http://app.frbcommunications.org/e/er?s=1064 &lid=4068 &elqTrackId=aa28d9d5146f47048417ef4591a1d54d &elq=28e6a8e97a264814a59f10d45a277435 &elqaid=10486&elqat=1

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