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Also, Why do economists give government budget deficits as a percent of gdp instead of Government revenue ? unnecessary indirection...

skissane 6y ago
It isn’t really indirection in that government can raise taxes, thereby increasing the amount of revenue available to service debt. The government doesn’t have as direct influence over GDP, and the impact of government policies on GDP takes longer to be seen. So it makes sense to express debt as a percentage of the figure which is the harder constraint.
- naveen99 6y ago
  It’s like startups reporting burn rate as a percentage of investor wealth. Governments already operate mostly near maximum revenue. Raise taxes anymore and Capital and labor walk away.
  - skissane 6y ago
    > Governments already operate mostly near maximum revenue. Raise taxes anymore and Capital and labor walk away. Look at OECD data on tax revenue as percent of GDP [1]. France is at the top at 46.1%. OECD average is 34.2%. US is near the bottom at 26.8%. Given the big differences in tax rates, it seems implausible every government is at maximum revenue - that might be true for the highest taxing countries like France and Denmark, but is unlikely to be true for a below-average tax country like the US. The “Laffer curve” determines maximum government revenue - the point at which raising taxes any further would cause overall government revenue to fall. Nobody knows exactly where that point is, but most experts believe the US is a fair way below it (see e.g. [2]) [1] https://data.oecd.org/chart/63TM https://data.oecd.org/chart/63TM [2] https://www.jstor.org/stable/23269968?seq=1 https://www.jstor.org/stable/23269968?seq=1
    - naveen99 6y ago
      I wonder if the us numbers are misleadingly low because they may not include state and city taxes. https://www.taxpolicycenter.org/briefing-book/what-breakdown-revenues-among-federal-state-and-local-governments https://www.taxpolicycenter.org/briefing-book/what-breakdown...
      - skissane 6y ago
        The OECD website says [1]: > This indicator relates to government as a whole (all government levels) "all government levels" means state/provincial/territorial/regional/county/city/town/etc, the whole lot So I see no evidence it is “misleadingly low”, I think the OECD’s statistics are generally accurate. (More accurate than the UN’s, because the countries whose governments are most likely to commit statistical fraud are not OECD members.) [1] https://data.oecd.org/tax/tax-revenue.htm https://data.oecd.org/tax/tax-revenue.htm
        naveen99 6y ago
        Thanks. Agreed.

skissane 6y ago

It isn’t really indirection in that government can raise taxes, thereby increasing the amount of revenue available to service debt. The government doesn’t have as direct influence over GDP, and the impact of government policies on GDP takes longer to be seen. So it makes sense to express debt as a percentage of the figure which is the harder constraint.

naveen99 6y ago
It’s like startups reporting burn rate as a percentage of investor wealth. Governments already operate mostly near maximum revenue. Raise taxes anymore and Capital and labor walk away.
- skissane 6y ago
  > Governments already operate mostly near maximum revenue. Raise taxes anymore and Capital and labor walk away. Look at OECD data on tax revenue as percent of GDP [1]. France is at the top at 46.1%. OECD average is 34.2%. US is near the bottom at 26.8%. Given the big differences in tax rates, it seems implausible every government is at maximum revenue - that might be true for the highest taxing countries like France and Denmark, but is unlikely to be true for a below-average tax country like the US. The “Laffer curve” determines maximum government revenue - the point at which raising taxes any further would cause overall government revenue to fall. Nobody knows exactly where that point is, but most experts believe the US is a fair way below it (see e.g. [2]) [1] https://data.oecd.org/chart/63TM https://data.oecd.org/chart/63TM [2] https://www.jstor.org/stable/23269968?seq=1 https://www.jstor.org/stable/23269968?seq=1
  - naveen99 6y ago
    I wonder if the us numbers are misleadingly low because they may not include state and city taxes. https://www.taxpolicycenter.org/briefing-book/what-breakdown-revenues-among-federal-state-and-local-governments https://www.taxpolicycenter.org/briefing-book/what-breakdown...
    - skissane 6y ago
      The OECD website says [1]: > This indicator relates to government as a whole (all government levels) "all government levels" means state/provincial/territorial/regional/county/city/town/etc, the whole lot So I see no evidence it is “misleadingly low”, I think the OECD’s statistics are generally accurate. (More accurate than the UN’s, because the countries whose governments are most likely to commit statistical fraud are not OECD members.) [1] https://data.oecd.org/tax/tax-revenue.htm https://data.oecd.org/tax/tax-revenue.htm
      - naveen99 6y ago
        Thanks. Agreed.