Download FACTORS GENERATING PUBLIC INDEBTEDNESS IN

ANALELE ŞTIINłIFICE ALE UNIVERSITĂłII „ALEXANDRU IOAN CUZA” DIN IAŞI
Tomul LV
ŞtiinŃe Economice
2008
FACTORS GENERATING PUBLIC INDEBTEDNESS IN DEVELOPED
ECONOMIES
Angela ROMAN*, Irina BILAN**
Abstract
This paper aims at pointing out the factors that have led to the accumulation of public debt in
the countries currently considered as developed. It first analyzes the dynamics of public debt in
industrialized countries, putting into light that its level has always been high. Establishing that a direct correlation exists between the evolution of the budget balance and public debt, it afterwards
emphasizes the causes of budget deficits and, implicitly, of public debt by minutely analyzing the
particularities concerning the level and structure of budget revenues and expenditures in developed
countries.
Key words: public debt, budget deficit, budget revenues, budget expenses
JEL classification: H20, H50, H62, H63
1. Introduction
The public debt issue does not represent a recent phenomenon. It has a long history
both in developed and in developing countries, often comprising moments of accentuated
growth with a devastating impact on the economies of debtor states.
The constant concern to dodge the effects generated by a significant public debt is of
utmost importance for both economic theory and practice. Even though a good management
may lead to a decrease of the negative outcome incurred, the safest way to avoid the destructive effects is to keep under control the level of indebtedness, by limiting the action of
factors triggering it. Therefore the first step in limiting indebtedness is the identification of
its causes.
* Angela ROMAN ([email protected]) is assistant professor of the Business Administration Department at "Al.
I. Cuza" University of Iasi, Faculty of Economics and Business Administration. She received her Ph.D. in finance
and money. Her research interests include: finance; money, credit and monetary policies. Her teaching interests include: monetary policies; international finance; money and credit.
** Irina BILAN ([email protected]) is instructor of the Business Administration Departmen at "Al. I. Cuza"
University of Iasi, Faculty of Economics and Business Administration. Her research interests include: public finance and taxation. Her teaching interests include: finance; public finance; money and credit.
Factors generating public indebtedness in developed economies
121
2. The dynamics and level of public debt in developed countries
Public debt has a long history of over three centuries in countries currently considered
to be developed. Nevertheless, the periods of public debt elevated increases were rare in the
past, being mostly determined by significant financial efforts generated by the participation
to armed conflicts, the liquidation of conflicts’ consequences and the reconstruction of
economy. Subsequently, the following periods of high inflation and devaluation
automatically brought about a bearable level of indebtedness for the state.
During the period 1970-1980, after the two oil shocks of 1973 and 1979, many
industrialized countries have entered a regime of permanent indebtedness. After 1980 public
debt increased with higher or lower constancy in most developed countries, trend which was
carried on after 1990, as it is shown in table 1.
The evolution of public debt has three different stages. The first, corresponding to the
time span until 1996, is marked by the continuity of the accentuated growth tendency which
was recorded starting with 1980. The degree of public indebtedness reached an average
level of 72.7% of GDP at the end of the period, with almost 20% of GDP more than at the
end of 1990.
After 1996 and until 2001, the public debt as percentage of GDP generally registered a
decreasing trend in most developed countries, reaching an average level of nearly 67.8% of
GDP at the end of the period. Japan and Korea were an exception to this trend, their public
indebtedness degree continuing to rapidly grow. In some European countries such as
Germany, France and Italy (the last two until 1998) public debt kept on going up. On the
other hand, Canada, USA, United Kingdom, Spain, Belgium and Sweden registered a
significant decline of public indebtedness.
Table no. 1 – The evolution of public debt in developed countries (% of GDP), 1990-2008*
Country/ 1990 1992 1994 1996 1998 2000 2001 2002 2003 2004 2005 2006 2007 2008
Group of
countries
Australia
21.9 27.4 40.1 39.1 32.3
25 22.2 20.1 18.8 17.1 16.8 16.1 15.5 14.1
Austria
57.2
57 64.7 69.6 67.4 69.4 70.2 71.7 69.7 69.2 69.5 65.5 64.2 63.2
Belgium
125.8 136.6 137.8 133.2 122.9 113.4 111.8 108.3 103.5 98.5 94.2 90.1 87.3 84.9
Canada
75.2 90.2
98 101.7 95.2 82.1 82.7 80.6 76.6 72.4 70.3 68.1 64.2 62.2
Korea
7.8 6.4 5.2 5.9 13.1 16.3 17.4 16.6 18.4 22.6 24.7 27.7 30.4 30.3
France
38.6 43.9 60.2 66.3
70 65.2 63.8 66.8 71.0 73.6 75.4 70.9 71.9 73.0
Germany
40.4 40.9 46.6 58.9 62.2 60.4 59.7 62.1 65.3 68.7 71.1 69.3 66.2 64.6
Italy
97.3 106.6 120.6 128.6 132.6 121.6 120.8 119.5 117 117.5 120.5 118.7 116.9 116.1
Japan
68.6 68.6 80.2
95 114.3 136.7 145.1 153.6 159.5 167.1 177.3 179.7 180.3 181.6
United
32.9 39.3 47.3
52 53.3 45.6 40.8 41.3 41.7 43.8 46.5 46.6 47.2 48.8
Kingdom
Norway
29.4 32.4 37.3 36.5 30.8 34.1 32.9 40.5 49.2 52.8 49.2 59.6 76.0 90.4
Spain
47.7 52.1 64.1 75.6 74.4 66.5 61.9 60.3 55.1 53.2 50.6 46.7 42.8 39.9
United States
63 70.2 71.1
70 64.5 55.2 55.2 57.6 60.9 62.0 62.4 61.9 62.2 63.8
Sweden
46.7 73.9 83.3 85.5 83.5 65.7 64.4 61.7 61.1 60.9 61.3 53.9 46.5 41.1
Average
53.6 60.4 68.3 72.7 72.6 68.4 67.8 68.6 69.1 69.9 70.7 69.6 69.4 69.5
level
Eurozone
57 60.6
69 77.4 80.1 75.1 73.7
74
75 75.8 76.9 74.8 72.4 71.2
* preliminary data for 2007 and forecasts for 2008
Source: [OECD, 2007]
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Angela ROMAN, Irina BILAN
After 2001, thanks to a background of economic growth deceleration, the public debt
of developed countries resumed its ascending trend. However, during the last two years,
many countries like Australia, Canada, Germany, Sweden and Belgium have registered
significant progress in reducing the degree of public debt. In this context, the average public
debt has a minor decrease, being of 69,4 % of GDP at the end of 2007.
As percentage of GDP, public debt had and continues to have a significant size, despite
recent developments. At the end of 2007, it exceeded 100% of GDP in Italy (116.9%) and
Japan (180.3%) and approached this value in Belgium and Norway. In the EMU member
states the average public debt was of 72.4% of GDP, much over the limit of 60% stipulated
in the Stability and Growth Pact.
These considerations show the imperious need to continue the efforts of diminishing
the degree of public indebtedness so as to dodge its harmful impact. Acknowledging the
factors contributing to public debt hike may represent, from this perspective, a point of
departure in identifying the solutions possible to apply.
3. Budget deficit promotion – a determining factor in public debt accumulation in
developed countries
The promotion of budget deficit, in the context of limiting or banning the access to
monetary issuance and its financing by means of public loan, represents the main channel of
feeding public debt in contemporary economies.
In most of the developed countries, public budget frequently registered a deficit after
1980, bringing about a major increase of public indebtedness. In the first half of the 90s the
major budget deficits also represented the origin of public debt increase recorded in the
industrialized countries.
Table no. 2 – The dynamics of budget deficits in developed countries( % of GDP), 1990-2008*
Country/ Group 1990 1992 1994 1996 1998 2000 2001 2002 2003 2004 2005 2006 2007
of countries
Australia
-2.0 -5.4 -4.5 -2.4 1.6 1.1 0.1 0.6 1.7 0.9 1.2 1.2 1.3
Belgium
-6.7 -8.0 -5.0 -3.8 -0.8 0.1 0.5 0.0 0.0 -0.1 -0.1 0.2 -0.2
Canada
-5.8 -9.1 -6.7 -2.8 0.1 2.9 0.7 -0.1 -0.1 0.8 1.6 1.0 1.3
Korea
3.1
1.4 2.9 3.4 1.6 5.4 4.6 5.4 0.4 2.5 3.0 3.0 3.0
France
-2.4 -4.5 -5.4 -4.0 -2.6 -1.5 -1.6 -3.2 -4.1 -3.6 -3.0 -2.6 -2.5
Germany
-1.9 -2.5 -2.3 -3.3 -2.2 1.3 -2.8 -3.6 -4.0 -3.8 -3.4 -1.6 0.0
Italy
-11.4 -10.4 -9.1 -7.0 -3.1 -0.9 -3.1 -3.0 -3.5 -3.5 -4.3 -4.5 -2.2
Japan
2.0
0.8 -4.2 -5.1 -5.8 -7.6 -6.3 -8.0 -7.9 -6.2 -6.4 -2.9 -3.4
United Kingdom
-1.8 -6.4 -6.7 -4.1 0.1 4.0 0.9 -1.7 -3.3 -3.3 -3.5 -2.8 -2.9
Netherlands
-5.3 -4.2 -3.5 -1.9 -0.9 2.0 -0.3 -2.0 -3.1 -1.8 -0.3 0.5 -0.1
Portugal
-6.3 -4.5 -7.4 -4.5 -3.0 -3.0 -4.3 -2.9 -3.0 -3.4 -6.1 -3.9 -3.0
Spain
-4.1 -4.0 -6.8 -4.9 -3.2 -1.0 -0.7 -0.5 -0.2 -0.4 1.0 1.8 1.9
United States
-4.2 -5.8 -3.6 -2.2 0.4 1.6 -0.4 -3.8 -4.8 -4.4 -3.6 -2.6 -2.8
Sweden
3.4 -9.0 -9.2 -3.4 1.2 3.8 1.7 -1.5 -1.1 0.6 2.1 2.3 2.9
Average level
-3.1 -5.1 -5.1 -3.3 -1.2 0.6 -0.8 -1.7 -2.4 -1.8 -1.6 -0.8 -0.5
Eurozone
-4.3 -4.7 -4.9 -4.2 -2.3 0.0 -1.8 -2.6 -3.1 -2.9 -2.5 -1.6 -0.7
* preliminary data for 2007 and forecasts for 2008; (-) indicates a budget deficit and (+) a budget surplus
Source: [OECD, 2007]
2008
1.2
-0.4
0.7
3.0
-2.6
0.1
-2.3
-3.8
-3.4
0.6
-2.4
1.5
-3.4
3.1
-0.6
-0.7
Factors generating public indebtedness in developed economies
123
Studying the data shown in table 2, we can observe the direct connection between the
evolution of budget balance and public debt in developed countries. We can see that the
high increase of public indebtedness degree registered in the first half of the 90s corresponds
to some major budget deficits in almost all developed countries (USA, Canada, Belgium,
United Kingdom, France, Italy, Spain, Portugal, Sweden, and Australia). The average budget deficit of the 14 developed countries of this analysis grew during this period 3.1% of
GDP in 1990 to 5.1% in 1994 and 3.3% in 1996.
In opposition, the subsequent decrease o public debt, until 2001, corresponds to a
reduction of budget deficits (France, Italy, Spain) or even the return to budget surplus
(USA, Canada, United Kingdom, Germany, Belgium, Holland, Sweden, Australia).
However, in Japan budget deficit kept on going up during the same period, in parallel with
an increase of public indebtedness. In the European Union member states, the reduction of
budget deficit occurred also due to the context of European currency adoption, when they
had to meet the limit of 3% of GDP established as nominal convergence criterion though the
Maastricht Treaty.
In the period following 2001, many developed countries registered an accentuated
budget deficit (France, Italy, Holland, Portugal) or even switched from budget surplus to deficit (USA, United Kingdom). Other countries, such as Australia and Korea managed to
maintain budget surpluses. On the average, the passage was from a budget deficit of 0.8% of
GDP in 2001 to 2.4% in 2003 and 1.6% in 2005.
New progress in diminishing budget deficits was registered during the last three years,
based on a background of a positive rhythm of economic growth and thanks to the fiscal
consolidation measures applied by many states. The average budget deficit for the 14
developed countries recorded in 2006 was of 0.8% of GDP and of 0,5% in 2007. The EMU
member states also strived to meet the requirements of the Stability and Growth Pact which
imposes a budget deficit within a limit of 3% of GDP, even in the period following the
adoption of the European currency. On the average, in these countries budget deficit
decreased from 2,9% in 2005 to 0,7 % in 2007.
The determining causes of budget deficits and implicitly of public debt are various in
the case of developed countries; there are general causes for both developed and developing
countries (passing through economic recession, elevated costs of government structure
maintenance, high public debt expenses etc.) and also, specific causes for industrialized
countries (for example the policy of governments to provide high welfare benefits to
population). We will further study these causes from the point of view of their effects on
budget revenues or expenditures, respectively.
4. Budget revenues formation – a factor with impact on deficit and public debt
Cyclic evolution of economy represents a first factor influencing the size of budget
balance, with an impact on both budget revenues and expenses. The deterioration of the
economic context, together with the entrance into a decline stage of the economic cycle is
likely to trigger the decrease of budget revenues – mostly that coming from taxes, and an
increase of budget expenditures - mainly that for social transfers (such as the unemployment
allowance) and eventually generating a worsening of budget deficit. On the other hand, the
positive part of the economic cycle may generate the growth of income and profit, causing
an increase of budget revenues, while budget allowances drop, thus cutting down budget deficit or even promoting budget surplus.
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Angela ROMAN, Irina BILAN
The connection between budget balance dynamics and the economic cycle, during the
period 1990-2008, is shown in picture 1. Output gap is used as macroeconomic index of the
economic state, defined as the difference between the actual and the potential GDP (at full
employment) expressed in percentage of potential GDP.
4
2
08
06
20
04
20
02
20
00
20
98
20
96
19
19
94
19
-4
19
19
90
-2
92
0
Budget deficit (-)/
budget surplus (+)
(% of GDP)*
Output-gap
-6
* average values for 23 developed countries for which data were available for the entire period;
preliminary data for 2007 and forecasts for 2008
Source: [OECD, 2007]
Fig. 1: The dynamics of budget deficits and output-gap in developed countries, 1990-2008
In figure 1 we are able to see that major budget deficits of the first half of the ’90s
occurred on the background of a period of economic recession. Subsequently, the
diminishing of budget deficit and even the promotion of surplus in the second half of the
’90s corresponds to a period of sustainable economic growth. On the average in the 23
developed countries taken into account in this study, actual GDP increased with 3-4% per
year (with a maximum of 4,35% in 2000). After a period of economic growth deceleration,
the new progress in diminishing budget deficit, registered by many developed countries,
starting with 2005, is mostly due to the increase of fiscal income in the context of economic
activities boost.
Relative to the budget revenues, thanks to the high level of economic growth, reflected
in the size of GDP, in the developed countries it is possible to distribute a greater extent of
resources to the public sector in comparison with other categories less developed, providing
at the same time a sufficient level of resources for the development of the private sector of
the economy. Therefore, as far as budget revenues are concerned, there are premises of
limiting the appeal to loan resources and of keeping a low level of public indebtedness.
Factors generating public indebtedness in developed economies
125
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35,4 34,6
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57,2 61,1
46
20 33,4 43 38,2 31,4 48,7 45,6 44,4 47,4 40 50 36,6
33,7 23,8
10
0
1994
2007
Source: [OECD, 2007]
Fig. 2: General government revenues in developed countries (% of GDP), 1994 and 2007
In figure 2 it is shown that current average government revenues represents, in the
developed countries, over 40% of the gross domestic product of these countries. Smaller
percentages, closer to 30% of GDP, were recorded in 2007 in USA, Japan and Korea. On
the other hand, the highest degree of GDP distribution through taxes, contributions, and
other current charges can be seen in France, Sweden and Denmark (over 50% of GDP). We
can also see that by comparison with 1994, in many of the studied developed countries
(USA, United Kingdom, Japan, France, Italy, Belgium, Spain, Portugal, Australia, Korea),
current revenues increased until 2007, even though not to a great extent. On the average, the
growth was of 1-3% of GDP, with a maximum of 10.8% in Korea.
5. Making budget expenses – impact factor on the deficit and the public debt
Although in the developed countries the procurement of a higher volume of resources
to the budget is possible by means of dues, taxes and other ordinary income, compared to
the less developed countries, nevertheless these states undertake increased risks, reflected by
an important volume of the budget expenses, which often makes impossible their covering
on account of the regular income.
Analyzing the data presented in figure 3, we could say that, although the amount of the
budget expenses in the GDP is not significantly different from one country to another,
nevertheless their level is high in all developed countries, exceeding one third of the GDP.
The highest amounts were, at the end of 2007, in the USA (37.4% of the GDP), Japan
(36.5%), Australia (34%) and Korea (31.7%). On the contrary, in Denmark, Sweden and
France, the amount of the public expenses in the GDP exceeded 50%.
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Angela ROMAN, Irina BILAN
37
49,7 45
35,6
60,4
54,2 47,9 53,5 52,4
53,5
46,7
44
70,3
51
38,2
21
53,8
53 44,3 48,4 48,3
38,8 45,7 45,9 50,7
37,4 38,6 44,6 36,5
34 31,7 46,4
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Eu rea
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80
70
60
50
40
30
20
10
0
1994
2007
Source: [OECD, 2007]
Fig. 3: General government expenses in developed countries (% of GDP), 1994 and 2007
Considering 1994 as a reference year, the tendency was to reduce the public expenses
until 2007, in most of the developed countries, object of the analysis herein. In Canada the
expenses decreased from 49.7% to 38.6%, in Denmark from 60.4% to 50.7% and in Sweden
from 70.3% to 53.8%. Considering the fact that in the same period of time, the budget
revenue either increased to the smallest extent or decreased, we could conclude that the
significant reduction of the budget deficits in the mid ’90s was due, first of all, to the
measures enforced by the governments of the developed countries on the reduction of the
budget expenses. Except for Korea, where the significant increase of the budget revenue
allowed for the expenditure increase (from 21% to 31.7% of the GDP), under the conditions
of promoting budget surpluses during this time.
The structure analysis of the budget expenses (table 3) highlights that, in the developed
countries, including those in the European Union, the highest percentages in the overall public expenses are oriented towards social and cultural actions (education, culture and art,
health care, social security). The percentage of the expenses for social and cultural expenses
in the total of the public expenses sensitively exceeds 50%, but with important variations
from one country to another. In 2004-2005, the lowest values, among the states considered
in the analysis, were in Hong Kong (49.34%) and in the USA (57.49%). On the contrary,
percentages much over 70% were in the Northern countries: Denmark (72.78%), Norway
(72.74%) and Sweden (71,19%).
With regard to the internal structure of the expenses for the social-cultural actions, the
highest percentage pertains, in the developed countries, to a subgroup referring to the social
security, representing over 50% of the total social-cultural expenses in countries such as
Japan (51.9%), France (60.2%), Germany (66.5%), Italy (59.0%), Denmark (57.4%),
Norway (53.6%), Sweden (61.2%) and Great Britain (53.5%). This proves that the social
security systems, by pensions, aids and benefits are strong in these countries.
Factors generating public indebtedness in developed economies
127
Table no. 3 - The functional classification of the general government expenses in developed countries
(% of the overall expenses)
Country Year General Defense Public Economic Environmental Housing & Health Recreation, Education Social
Public
Order Affairs
Culture
Security
Protection
Community
Services
and
Amenities
and
Safety
Religion
United
2005
13.35
11.61
5.67
10.10
...
1.74 20.34
0.83
17.05
19.27
States
Canada
2005
14.13
2.65
4.88
8.41
1.70
1.90 18.72
2.54
15.15
29.93
Australia 2005
12.18
4.49
4.66
11.66
1.27
2.51 17.82
2.47
14.91
28.04
Japan
2004
13.59
2.62
3.82
10.66
3.61
1.91 19.03
0.41
10.68
32.55
France
2005
13.44
3.58
2.59
5.40
1.52
3.40 13.65
2.77
11.48
42.16
Germany 2005
13.08
2.36
3.45
7.42
1.07
2.14 13.30
1.37
8.87
46.95
Italy
2004
17.64
2.65
3.76
8.17
1.65
1.59 13.82
2.01
10.27
37.50
Denemark 2004
13.47
2.88
1.85
6.53
0.96
1.27 13.40
3.09
14.82
41.74
Norway 2005
9.36
3.72
2.44
8.94
1.35
1.44 17.26
2.60
13.90
38.98
Sweden 2004
13.53
3.47
2.45
8.62
0.63
1.49 12.53
1.84
13.26
43.56
United
2005
10.84
6.01
5.71
6.12
2.15
2.23 16.50
1.88
12.74
35.82
Kingdom
Hong
2004
19.88
... 10.46
9.72
3.24
7.37 12.85
3.26
19.94
13.29
Kong
Source: [IMF, 2006]
In the light of their high level, the expenses for social-cultural actions (and first of all
for social security) can be considered as the main cause of running budget deficits in the
developed countries. The significant increase of this category of expenses occurred after the
Second World War, under the conditions of the Welfare state emergence, represented,
according to Orsoni Gilbert, „by the organization manner of a society guaranteeing its
members a maximum of social welfare and economic security by means of a redistribution
of taxes and social contributions” [Văcărel, 2004, 185]. In such a context, the part of the
gross domestic product intended for social needs evolved very much: in the developed
countries, until the Second World War, this represented approximately 6%; in the ’50 it
raised to approximately 20% and in 2000 it represented 30-50% and even more.
Alberto F. Alesina [Alesina, 2000, 3-19] draws the same conclusions on the main
causes of budget deficits occurrence in the developed countries. Analysis of the situation of
the OECD member states, including the Unites States of America highlights that the social
transfers, in particular the pensions granted by the social insurance public system are mainly
accountable for the increase of the governmental sector size and of public deficits.
Therefore, the author considers that the main challenge of this decade is to reform the pension systems. Otherwise, up to the present moment, such reforms, with impact in the public
expenses reduction plan, mainly social, have already been started during the last years in
many developed countries.
Other authors, such as Laurence J. Kotlikoff and Christian Hagist [Kotlikoff, 2005, 141], highlight the important contribution of health-related expenses to the budget deficits’
occurrence in the developed countries. They highlight that in the OECD countries, the
health-related public expenses increased faster than the increase pace of the gross domestic
product in the last decades. Thus, between 1970-2002, in the USA, the health-related public
expenses increased by 2,3 times higher than the GDP, in Germany 2 times higher and in
Japan 1,4 times higher. The two authors show that this increase of the health-related public
expenses is determined in a percentage of 75% by the increase of the benefits level, offered
to the individuals and draw attention on the long term consequences of the unsustainable
increase of the benefits associated with the health-related public expenses. Thus, if the
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Angela ROMAN, Irina BILAN
increase pace of the benefits granted in the following four decades will maintain at the
current level, the OCDE member states will certainly face substantial budget deficits.
On the background of the population aging process worldwide, as a result of birth rate
decrease and longevity increase, the public expenses for social actions will represent in the
future, the main cause of the budget deficits occurrence and this way, of public debt
accumulation. According to the national authorities’ estimates, the expenses on health
protection and pensions will increase in average, in the developed countries, by 4% of the
GDP 2005 through 2050. The estimates have major variations from one country to another,
the maximum level being reached by Canada, with a forecast increase of 9% until 2050, and
the minimum by Italy by 2%.
With regard to the contribution of other expense categories to the budget deficits
occurrence, making major military expenses, the main cause of past budget disequilibria, is
found to currently represent one of the determining factors of the budget deficit in some
developed economies. In 2005, the national defense–related expenses represented in average
2-4% of the total budget expenses of the developed countries except for Great Britain
(6.01%) and the USA (11.61%). The expenses generated by the fight against terrorism, after
the attack on September 11th 2001, are thus considered the main determining factor of
returning to the budget deficits in the USA in the period of time following the said moment.
In such context, B.M. Friedman [Friedman, 2005, 2], analyzing the determining factors
permanentizing the budget deficits in the USA, between 1990-2004, shows that they were
determined, to a great extent, by military expenses shocks. If in the 1980s the taxation
programme enforced by the American President Ronald Reagan, meaning the reduction of
taxes, increase of military expenses and maintaining of major expenses in non military area
led to record budget deficits and to the doubling of the national debt reported to the national
revenue, the same happened after 2001. The programme applied by the President George W.
Bush, combining the tax reduction with the increase of military expenses and increase of
expenses related to non-military programmes, as well as those related to subsidies granted to
farmers led again to record budget expenses.
An important percentage in the total of the budget expenses is also held in the
developed countries by the expenses related to the maintenance of governmental agencies,
reflected in the category of expenses for general public services. Under the point of view of
the evolution in time, this category of public expenses had a continuous increase tendency,
mainly following the emergence of new tasks and assignments for the state authorities, the
increase of the state institutions’ size and the payroll level of the public officers. In average,
they represented, 2004 through 2005, between 10 and 20% of the total of public expenses.
Table no. 4: The interest expenses on the debt outstanding of the general government in developed
countries
Country
Year
National
Interest expenses on the debt outstanding
currency
in billions of national in % of
in % of overall
currency
GDP
expenses
United States
2005
Dollar
346.70
2.79
7.62
Canada
2005
Dollar
46.93
3.43
8.59
Australia
2005
Dollar
14.84
1.59
4.61
Japan
2004
Yen
13197.00
2.65
7.20
France
2005
Euro
46.19
2.69
5.02
Germany
2005
Euro
61.80
2.75
5.90
Grece
2005
Euro
8.53
4.30
10.09
Factors generating public indebtedness in developed economies
Italy
2004
Euro
Norway
2005
Krown
Sweden
2005
Krown
United Kingdom 2005 Sterlin pound
Source: [IMF, 2006 and IMF, 2007]
66.64
23.42
51.9
25.76
4.79
1.21
1.90
2.09
129
9.75
2.89
3.50
4.72
Under the conditions of accumulating important public debt, the increase of interest
rates-related expenses had a significant contribution to the budget deficit occurrence and this
way, to the self-supplying of public debt in developed countries. As illustrated in table 4, in
2005 approximately 2-4% of the GDP had such destination. In Greece and Italy, the
countries with the highest indebtedness level, the percentage was much higher, of 4.3 and
respectively 4.79% of the GDP. Reported to the budget expenses total, the percentage of
interest rates-related expenses to the public debt is variable, in Greece even exceeding the
level of 10%.
6. Conclusions
The public debt has more often in the developed countries high levels, both in absolute
size and as percentage of the GDP. The analysis conducted throughout this paper led to the
finding that its accumulation owed, to the greatest extent, to the practiced budget deficits,
with a higher or lower regularity by the public authorities.
The high degree of economic development allowed these countries to attract an important amount of resources to the budget by means of dues, taxes and contributions, creating,
as income are concerned, the conditions of maintaining the deficit and public debt to a low
level. The main cause of the budget deficits occurrence is represented, therefore, by the high
size of the public expenses by the maintenance of the governmental, military agencies, with
the interest rates to the public debt but, mainly, social-cultural expenses, following the concern with providing for a high welfare to the population, even under the conditions of an
economic recession.
Awareness of the negative effects which an important public debt generates on the
economic and social development level determined, in the last years, increased concerns, on
part of the governments, with limiting the same, by the budget deficits reduction. We consider that these concerns must not only continue but also get stronger, in particular as on the
background of population aging, in the future, additional pressures will be exerted with
regard to budget expenses. More important issues could emerge in the countries with the
highest current budget deficits and public debt, such as the Unites States of America and
Japan. The analysis conducted on the causes of the budget deficits is able to suggest as
privileged modality of action the concern with the reduction of the budget expenses which,
as past experience indicates, provides for a safer and durable way towards the consolidation
of the taxation position compared to tax increase.
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