2 What is public debt?

Let’s start with a simple definition: The total amount of public debt is the total outstanding amount of money owed by the government to other economic actors at any given time.

Public debt arises because of a mismatch between the government’s total revenues – mainly stemming from taxes on income, products or wealth, including inheritance – and total expenditures – including spending on social security transfers, health care, education, security and administration as well as public investment, but also on debt amortization and interest payments. When total expenditures exceed total revenues, the government runs a budget deficit and needs to finance the mismatch by taking up debt. This debt is issues in the form of different financial instruments, for example government bonds and hold by different actors in the financial system. The outstanding stock of public debt is therefore the accumulated sum of government deficits.²

Public debt and deficit: The outstanding stock of public debt is the accumulated sum of government deficits.

\[\text{Deficit} = \text{Revenues } – \text{ Expenditures}\] \[\text{Public debt} = \text{Sum of deficits}\]

Next, let’s look at how government debt is usually reported.