Scale-Invariant Properties of Public-Debt Growth

Europhysics Letters, Vol. 90, 2010

9 Pages Posted: 24 Oct 2010

See all articles by Alexander Michael Petersen

Alexander Michael Petersen

University of California Merced, Ernest and Julio Gallo Management Program

Boris Podobnik

Boston University; University of Rijeka

Davor Horvatic

Theoretical Physics Department, University of Zagreb

H. Eugene Stanley

Boston University - Center for Polymer Studies

Date Written: May 2, 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 R, a proxy for default risk, and approximate the probability density function P(R) with a Gamma distribution, which can be used to establish thresholds for sustainable debt. We also observe "convergence" in R: countries with initially small R increase their R more quickly than countries with initially large R. The scaling relationships for debt and R have practical applications, e.g. the Maastricht Treaty requires members of the European Monetary Union to maintain R < 0.6.

Keywords: Public Debt, Debt-to-GDP, Growth, Convergence

JEL Classification: H63, E62, F34, F43

Suggested Citation

Petersen, Alexander Michael and Podobnik, Boris and Horvatic, Davor and Stanley, H. Eugene, Scale-Invariant Properties of Public-Debt Growth (May 2, 2010). Europhysics Letters, Vol. 90, 2010, Available at SSRN: https://ssrn.com/abstract=1696611

Alexander Michael Petersen (Contact Author)

University of California Merced, Ernest and Julio Gallo Management Program ( email )

School of Engineering
Science & Engineering 2, Suite 315
Merced, CA 95343
United States

Boris Podobnik

Boston University ( email )

University of Rijeka ( email )

Rijeka, 51000
Croatia

Davor Horvatic

Theoretical Physics Department, University of Zagreb ( email )

Trg maršala Tita 14
Zagreb
Croatia

H. Eugene Stanley

Boston University - Center for Polymer Studies ( email )

Boston, MA 02215
United States

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