Fiscal consolidation requirements in the OECD countries are summarized as: 'Consolidation requirements are substantial; merely to stabilise debt-GDP ratios by no later than 2025 requires strengthening the underlying primary balance from the current position by more than 5 per cent of GDP in the OECD area on average.
Figure 3: Highest and lowest median initial Debt-GDP Ratios and median GDP growth, 1981-2009 Median Debt Median Real GDP (1981-2009) growth (1981-2009) Above 120% Debt 170.
As growth declines, debt-GDP ratio rises, so the causality may run from low growth to high debt-GDP ratios.
For example, high public debt could be used to improve schooling which is found to have a larger positive impact on growth than the estimated negative impact of public debt-GDP ratios.
To reinforce this point we construct bar diagrams with median debt-GDP ratios and median growth rates for different sub-periods in Figure 2.
We find that the negative relationship between debt and GDP growth is influenced by outliers or exceptionally high debt-GDP ratios.
But it appears as though the country has at least 10 years of debt-GDP ratios that are lower--sometimes considerably lower--than ratios that are common in Japan, many developed European economies, and in emerging markets.
Small changes in large programs can have a significant effect on future debt-GDP ratios.
Keywords: fiscal policy, federal debt, interest costs, debt-GDP ratio, health costs, entitlements
Even while the deficit is relatively low, it is not low enough to lower the debt-GDP ratio significantly.
But there is no denying that it will be extremely difficult politically to put the debt-GDP ratio on a persistent downward path.
The country has long coped with similar debt-GDP ratios
for some 20 years after profligate government spending in the 1980s.