Public Debt

Abstract

AbstractMore than a third of private wealth in the OECD plus China region consists of entitlements to public retirement benefits. If the state covered these future obligations using a reserve fund, an insoluble problem of investment would arise. It is only by doing without reserve funds that the twenty-first century welfare state is compatible with price stability at non-negative real interest rates. In calculating government obligations according to the ADL method, statistical offices acknowledge the implicit public debt deriving from the retirement system. Systems of public health insurance and public nursing care insurance also generate considerable implicit public debt and corresponding private wealth. The TRILL system advocated by Robert Shiller can make an important contribution to stabilize the high public debt that will be necessary in the future at low real interest rates. We undertake an empirical estimation of the level of public debt in the OECD plus China region. To determine explicit public debt, we use data on net public debt from the International Monetary Fund. Implicit public debt is mainly comprised of the state’s capitalized financial obligations deriving from the public retirement system and public health insurance. Some statistical offices publish data on the retirement benefit entitlements that have accrued within social security systems. This data provides an important basis for our calculations. We estimate that total public debt in the OECD plus China region is equivalent to more than 600% of total annual consumption in the region.