Possible pressures on the public debt

In the previous Note, we considered the relationship between nominal GDP growth, the fiscal deficit, and the evolution of the debt/GDP ratio. We noted that the math only works if the deficit accurately and truly reflects all the pressures on the stock of debt. In this Note, we can look at this issue in more detail with past data for Greece from 1995-2017.

Data from Greece's statistical office ELSTAT and the European Union's Eurostat are in Table 1. The first column shows the fiscal balance of the general government according to ESA 2010 accounting agreements among EU countries - this is the "reported" deficit. This balance reflects all revenue minus all expenditure, and economists often refer to this deficit as measured "above the line." The numbers show that there has been a continuous substantial deficit, except for 2016 and 2017, when the government reported a small...