Such a title might scare some of my fiscally hawkish readers who have – rightfully – identified me as a fiscal hawk. However, I really do believe that the information conveyed by debt/GDP ratios is only “trivial”. The information that holds more value to my eyes is government revenues as a share of GDP and debt as a share of government revenues.
These two pieces of information convey the most importants regarding solvency. If a country has a debt that is equals to 100% of its GDP, but whose government revenues are only 10% of the economy, then things are not as bad as they look. It means that this country might be able to tax more without hampering economic growth. However, if another government has a debt standing also at 100% of GDP but whose revenues already represent 50% of GDP, there is considerably less room for collecting ressources to pay the debt without hampering economic growth (hence obtaining less revenues than projected). I have written on this issue in the past (with Quebec in mind) and I believe it might be time to refocus the technical debate on these pieces of information rather than only Debt/GDP ratio.