The cost of servicing debt. To an individual or business, this is what they have to pay in interest and redemption payments. If government debt is held externally, payments to non-residents are a real burden on residents. This is increased for the country as a whole if the need for external debt service worsens the country's terms of trade. Even where debt is held internally by residents, it is usually impossible for the government to finance debt service except by the use of taxes which distort incentives, so that taxation reduces the real wealth of taxpayers by more than the amount the government receives. This deadweight burden arises from the existence of government debt, even if this is held by residents.