Prague Economic Papers 2014, 23(1):84-107 | DOI: 10.18267/j.pep.474

Debt in Relation to the Standard of Living Enjoyed by the Population of Developed Countries

Luboš Smrčka, Markéta Arltová

University of Economics, Prague, nám. W. Churchilla 4, CZ - 130 67 Prague 3 (smrckal@vse.cz, arltova@vse.cz).

The paper attempts to analyse the effects of the cumulated public sector debt (in this relation essentially government debt and family debt), primarily on the development of the population's standard of living. In this regard, the paper quantifies the impact of debt on the real standard of living - whether we define it merely as the ability to consume, or broadly as the sum of multiple criteria including, for instance, the quality of the environment. This quantification uses data from the economy of the Czech Republic; however, this method can be in principle used for other national economies, but must be adjusted to reflect the specific features of their development. Using the analysis of time series, the paper investigates some other aspects of the debt situation of families in the Czech Republic, especially the development of the relationship between families' savings and debt, and finds that debt prevails over savings in the long run. Several conclusions for the future can be derived from these results. These conclusions can be summarized in a statement that future political representations will have to continuously bridge the gap between the need to reduce the standard of living of large groups of the population on the one hand, and the need to make sure that the necessary reforms are politically viable on the other hand.

Keywords: debt crisis, public budgets, Eurozone crisis, gross domestic product, mortgage crisis, standard of living

JEL classification: C5, D1

Published: January 1, 2014  Show citation