Scale-invariant properties of public-debt growth

¹  Center for Polymer Studies and Department of Physics, Boston University - Boston, MA 02215, USA
²  Faculty of Civil Engineering, University of Rijeka - 51000 Rijeka, Croatia
³  Faculty of Science, University of Zagreb - 10000 Zagreb, Croatia

Corresponding author: amp17@physics.bu.edu

Received: 8 February 2010
Accepted: 2 May 2010

Abstract

Public debt is one of the important economic variables that quantitatively describes a nation's economy. Because bankruptcy is a risk faced even by institutions as large as governments (e.g., Iceland), national debt should be strictly controlled with respect to national wealth. Also, the problem of eliminating extreme poverty in the world is closely connected to the study of extremely poor debtor nations. We analyze the time evolution of national public debt and find “convergence": initially less-indebted countries increase their debt more quickly than initially more-indebted countries. We also analyze the public debt-to-GDP ratio , a proxy for default risk, and approximate the probability density function with a Gamma distribution, which can be used to establish thresholds for sustainable debt. We also observe “convergence" in : countries with initially small increase their more quickly than countries with initially large . The scaling relationships for debt and have practical applications, e.g. the Maastricht Treaty requires members of the European Monetary Union to maintain < 0.6.