ABSTRACT
THIS CHAPTER ANALYSES THE DYNAMIC relationship between persistent government deficits and the consequent accumulation of government debt. Here I make use of three definitions of the government deficit. The first, measured on a cash basis, is the overall or conventional deficit reported by the media and published in International Financial Statistics (IFS), the main data source used in this book.1 It is defined as government expenditure minus government revenue. Here debt repayment is excluded from but interest costs included in government expenditure, while borrowing is excluded from government revenue. This definition measures the gap to be covered by net borrowing (Tanzi, Blejer and Teijeiro 1988, 5). When the government runs a conventional deficit, its nominal debt increases.
