Quote:
Originally Posted by Ryan Coke
Some good points relating to GDP and its statistical limitations, but based on other posts you feel that a place like Ireland would be good to dramatically increase government debt since you feel that debt to GDP ratio is a particularly useful measure?
Seems incongruous.
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Not really. GDP is largely a measure of the tax base because corporate profits that flow through the country can and are taxed by that country. So a country with a high GDP could generally service a debt that's in proportion with their GDP.
Ireland specifically would probably want to be careful with debt because their high rate of economic activity is based more on convenience (primarily due to low taxes) than it is with anything inherently relating to Ireland. So they may not have the capacity to raise taxes compared to places where economic activity is more intrinsic to the location (like with a resource rich country for instance).
I suppose you could use debt-to-tax revenue as a measure to compare across jurisdictions, but that has weaknesses as well, largely because it ignores the fiscal capacity to service the debt. A country with really high taxes might come out looking OK, but they likely can't raise taxes any further if they need to, while a lower tax jurisdiction has more room to move, and debt to GDP will account for that.