Government debt is simply the amount of money owed by a government entity, whether it’s on the municipal, state, or federal level. Most often, government debt is referred to as the total debt owed by the federal government, otherwise known as the national debt.
Government debt in recent years has been the source of considerable concern as its size has increased significantly due to the Great Recession. Reduced economic activity and personal incomes reduced tax revenues to the government; this, combined with continued government spending, has produced significant annual deficits, which have contributed greatly to the rising national debt.
What’s often referred to as an important statistic regarding the national debt is the debt-to-GDP ratio, which represents an economy’s ability to service the debt on its books. The U.S.’ total debt-to-GDP ratio is now greater than 100%, significantly higher than its historical average over the last century.