Risk‐weighting debt implies more fiscal space

• ? Markets are more tolerant of fiscal expansion than governments typically fear. The composition of major economies' government debt has become safer and this is reflected in our estimates of a new indicator – risk‐weighted debt (RWD). Using RWD to measure debt provides a relatively benign indication of risks to sustainability in the major economies since 2004.
• ? Our RWD measures consist of six categories of debt holders, with weights allocated to their risk‐to‐flight potential. Debt holders range from riskier foreign banks and non‐banks (highly weighted), which would be most inclined to sell when times get tough, to safer entities such as central banks (zero weight).
• ? RWD looks less alarming than unweighted measures. Major economies' total public debt rose by 10% of GDP on average since 2011; RWD was up by just 1% of GDP.
• ? Japan and Italy show the biggest relative improvements when the focus shifts to RWD from debt‐to‐GDP. The two countries' RWD has fallen significantly since 2011.
• ? RWD improvements limit the extent to which indebtedness threatens sustainability.