Are USA & Europe net debtors or net creditors?

If official statistics fail to capture most assets held by households in the USA and European in offshore tax havens, it is likely they significantly underestimate how much wealth rich nations hold, and misrepresent them as net debtors rather than net creditors.

A creditor is a party that is owed money. A net creditor in this context is a nation or region that is owed more than it owes. A debtor is the entity that owes money. A net debtor owes more than it is owed.

Gabriel Zucman writes in The Quarterly Journal Of Economics that approximately 8% of the global financial wealth of households lies in tax havens.

Zucman adds that most of these assets go unrecorded.

When using a unique Swiss data set, Zucman found that the Eurozone is not the world’s second largest net debtor, but is in fact a net creditor.


Including household wealth held in tax havens considerably reduces the USA’s debtor status.

Zucman, who works at the Paris School of Economics, wrote:

“The results shed new light on global imbalances and challenge the widespread view that after a decade of poor-to-rich capital flows, external assets are now in poor countries and debts in rich countries. I provide concrete proposals to improve international statistics.”

First puzzle – The World as a whole is a net debtor

In the field of international investment statistics there is a gaping enigma:

  • Globally, liabilities tend to exceed assets. Overall, the world is a net debtor
  • If you add up all the balance of payments globally, more investment income is paid than received annually

This anomaly was first identified in the 1970s. A number of reports to determine what the causes might be were commissioned by the IMF (International Monetary Fund).

Enormous effort has been placed into trying to get more accurate data. However, the anomalies continue. Zucman wrote “many European securities, in particular, have no identifiable owner.”

tax havens

If we include all the money in tax havens, Europe becomes a net creditor

Second puzzle – a theoretical challenge

From 1995 onwards capital has been moving from poor to rich nations.

According to official data, the rich world seems to have become an enormous net debtor, especially the USA and Europe.

Despite many attempted explanations for the American net debt and the increase in China’s assets “the negative net positions of Europe and the overall rich world remain largely unexplained.”

Many observers, including experts have come to accept the view that debts are now in rich countries and external assets in poor nations.

It has become fashionable to say that China owns the world. “Should it be correct, the implications for policy making and open-economy modeling would be far-reaching.”

In fact, what countries’ and households’ revenue is made up of would be quite different if we included data on that 8% held in tax havens.