A note on the evaluation of public deficits: net or gross of interest?

Abstract

In the present note, the author argues that reference to a budget deficit that excludes interest payments, while justified in certain contexts, is not justified in others. Indeed, it may induce incorrect or distorting conclusions when used to discuss the objectives of economic policy, and in particular the aim of stabilising the size of the national debt. The note concludes by proposing a very simple rule for the calculation of the maximum budget deficit compatible with a stable national debt. JEL: H62, H63

Keywords

• Budget deficits
• interest payments
• national debt stabilisation