Public finance and fiscal policy

Debt and Macroeconomic Stability


Debt as a share of GDP has surged in the OECD since the mid-1990s (see interactive chart below). Average total economy financial liabilities have gone beyond 1 000% of GDP during the recent crisis. The degree of total economy indebtedness differs strongly across countries, largely reflecting the relative importance of the financial sector. The size of the financial sector varies considerably, being markedly higher in countries, which host financial centres.

Main Paper

Economic Policy Note no. 16

An overview of the literature and some empirics

Debt and the business cycle

Case Studies

Debt Burdens, guest commentary in Bloomberg Brief, Economic European Edition, 01.18.13


  • Public and private debt levels are very high by historical standards. OECD-wide total financial liabilities now exceed 1000% of GDP.
  • High debt levels can create vulnerabilities, which amplify and transmit macroeconomic and asset price shocks.
  • High debt levels hinder the ability of households and enterprises to smooth consumption and investment and of governments to cushion adverse shocks.
  • When private sector debt levels, particularly for households, rise above trend the likelihood of a sharp economic downturn increases.
  • Measures of financial leverage give less warning of an impending recession and typically only deteriorate once the economy begins to slow and asset prices are falling.
  • During a recession debt typically migrates from the private sector to the government sector.
  • Targeted macro-prudential policies would help in addressing future run-ups in debt.
  • Robust micro prudential regulation and maintaining public debt at prudent levels can help economies cope with adverse shocks.
  • Legal frameworks can facilitate debt write-downs, but this may come at the price of a higher cost of capital.

Interactive eXplorer chart: Debt Developments


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