...pace of economic activity, with its objective of maintaining high levels of employment and controlling price stability (inflation). It has two main tools for achieving these goals: fiscal policies, which is done through taxes and spending and monetary policies, through which it manages the supply of money. In this paper, I will discuss the why high deficits of today will reduce growth rate of the economy in the future, look at the history of our nation’s debt and deficits, different elements that causes of deficit and why the cause actually matters, what role the fiscal and monetary policies have to lead to higher or lower budget deficits and how deficits affect the overall long-term economic growth and debt of the U.S. Let us first begin by learning the difference between the terms debt and deficit. In economics, the term deficit means a shortfall in revenue of a fiscal year. It is when the government’s revenue called receipts, which are collected taxes (payroll, corporate, excise, income and social insurance), fee revenues and tariffs that are called receipts are lower that what is spent called outlays. In other words, the federal budget deficit is the yearly amount by which spending exceeds revenue. The term debt is described as an accumulation of deficits so the national debt is the total amount of money owed by the government. It is calculated by adding all of the deficits minus the surpluses since the nation’s inception and you get the current national debt. According...
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...Assignment DEFICIT FINANCING: TEORY AND PRACTICE IN BANGLADESH Submitted By Zahirul Islam [pic] DEFICIT FINANCING: TEORY AND PRACTICE IN BANGLADESH INTRODUCTION In the past as today, the deficit budget policy is famous instrument of fiscal policy used to increase the rate of economic growth of the country. That way of financing was establish after the two world wars, oil crises and current financial and economic crises. The objective in seeking deficit financing is to finance the shortfall between government expenditures and tax receipts. Tax increases are not politically palatable. Governments often resort to deficit financing when other components of GDP such as private consumption decline during recessionary periods. Such deficits, if undertaken for a short period with an action plan to create equivalent surplus in near future, could reverse decline in real GDP and stimulate growth in real GDP for the benefit of citizens of the nation. Structural deficits are indicative of inability to reduce entrenched government expenses. The sustainable level of accumulated deficits can also be determined with reference to both the deficit servicing requirements and deficit servicing sources. This analysis will entail identification of cause and effect relationships that determine the factors influencing each of these two areas. As shown by other researchers, the explanatory variables leading to deficits include domestic budgetary receipts;...
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...National Debt in the U.S.A Name Professor Institution Course Date ABSTRACT The fast increase in the National government debt is becoming of interest to decision makers and the citizens of the USA. This paper examines the implications of the increasing debt financing to the economy of the United States. The proportion of the U.S.A National debt is rising in comparison to the National GDP. In the past decade, the USA Treasury has been borrowing trillions of dollars from both foreign investors and its citizens to help fund wars save the financial system as well as promote the economic development of the country. Does the increasing debt have any impact on economy? This paper will explain that an appropriate analysis on the United States debt is important to cope up with this worrying trend. INTRODUCTION In general, debt can be viewed as something specific in nature which the creditor and debtor can’t control at will. The United States National debt has been increasing at an average rate of about $1.64 billion each day since September, 2004 (Lucas, 2005). Manuel estimates that every human being in the United States currently owes $56,651 for their share of the U.S.A public debt. As at 27th October 2013, the total National debt of the United States was $ 17,211,829,040,346.01 (Manuel, 2013). This is an indication of how the national debt in the United States of America has been rising in the recent years. Recently...
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...Budget Deficits, National Saving, and Interest Rates William G. Gale and Peter R. Orszag September 2004 Brookings Institution and Tax Policy Center. This paper was prepared for the Brookings Panel on Economic Activity, September 9-10, 2004. We thank Emil Apostolov, Matt Hall, Brennan Kelly, and Melody Keung for outstanding research assistance; Alan Auerbach, William Brainard, Robert Cumby, Bill Dickens, Doug Elmendorf, Eric Engen, Laurence Kotlikoff, Thomas Laubach, Maria Perozek, George Perry, Frank Russek, Matthew Shapiro, and David Wilcox for helpful discussions; and Eric Engen, Jane Gravelle, and Thomas Laubach for sharing data. ABSTRACT This paper provides new evidence that sustained budget deficits reduce national saving and raise interest rates by economically and statistically significant quantities. Using a series of econometric specifications that nest Ricardian and non-Ricardian models, we obtain evidence of strong non-Ricardian behavior in aggregate consumption. Consistent with several recent studies, we find that projected future deficits affect longterm interest rates, but current deficits do not. Our estimates suggest that each percent-ofGDP in current deficits reduces national saving by 0.5 to 0.8 percent of GDP. Each percent-of-GDP in projected future unified deficits raises forward long-term interest rates by 25 to 35 basis points, and each percent-of-GDP in projected future primary deficits raises interest rates by 40 to 70 basis points...
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...Fiscal Policy and Budget Deficits Fiscal and monetary policies are the two major tools available to policy makers to alter total demand, output, and employment. This feature will focus on fiscal policy, what it is and its potential and limitations as a tool with which to promote economic stability and strong growth. What is Fiscal Policy? When the supply of money is economic constant, government expenditures must be financed by either taxes or borrowing. Fiscal policy involves the use of the government’s spending, taxing and borrowing policies. The government’s budget deficit is used to evaluate the direction of fiscal policy. When the government increases its spending and/or reduces taxes, this will shift the government budget toward a deficit. If the government runs a deficit, it will have to borrow funds to cover the excess of its spending relative to revenue. Larger budget deficits and increased borrowing are indicative of expansionary fiscal policy. In contrast, if the government reduces its spending and/or increases taxes, this would shift the budget toward a surplus. The budget surplus would reduce the government’s outstanding debt. Shifts toward budget surpluses and less borrowing are indicative of restrictive fiscal policy. It is important to note that a budget deficit is different from the national debt. A deficit occurs when government spending exceeds revenue over a year, quarter or month. A deficit will increase the size of the national debt. Put another way...
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...Balanced Budget Todd Driscoll ECO 203 Principles of Macroeconomics Instructor: Jason Friedline October 23, 2012 Balanced Budget Economists generally agree that high budget deficits today will reduce the growth rate of the economy of the future. The difference between what a government spends and what it collects in taxes in a given period is known as a budget deficit. There are many reasons why this might happen. One might be that if our government keeps spending money that does not exist obviously the more debt will accumulate. The government cannot keep this up without creating more debt. It the same as budgeting you personal accounts. If you get a new credit card or loan to consolidate old debt and then re-use your old cards, it rather defeats the purpose of getting out of debt. Another reason might be that due to the enormous loss of jobs there are less taxes being paid to pay our nations bills or to re-invest back into the economy. There is no point to list these reason in number order there are so many. If the deficit is growing it affects the nation savings, in turn, reduces national income. This may become possible if interest rates go up or domestic investments fall. Economists agree these a few things on when it comes to a high deficit. Deficits over a short period do not really have much affect, because the United States can borrow to cover these gaps due to the dollar’s value as the leading currency. If the deficit is sustained over a long period...
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...Immediately as I write this essay Britain’s national debt stands at around £946,319, 240,034, 83.7% debt to GDP ratio whilst the US has a national debt of over $13,492,377,103,199. ‘Thanks to Mr Osborne, Britain now has the earliest, most aggressive programme to cut government borrowing in the G7, despite widespread fears about the strength of the UK and global recovery’ (Flanders, 2010). In this essay I will focus on Britain’s budget deficit, in particular the Emergency Budget, presenting various topics for debate in relation to different aspects of the budget. I will further expand into broader topics such as the recession as a whole, the previous Labour government, other countries situations and subsequent response and the theory behind the policies undertaken, whether driven by political or economic incentives for example. Throughout the essay I will attempt to present ideas in a balanced approach, clearly showing the difference between positive and normative statements. An economies growth rate fluctuates over a period of time, known as the economic cycle. It shows the changes over time in the macro economy such as a recession where growth falls below the trend growth rate: a negative output gap. Such events are cyclical and the general period of time between one boom and another is usually five to eight years (Peter Cramp, Informe). Gordon Brown was keen to avoid successive budget deficits to fund government spending for the expansion...
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...Overview: The US government currently has over $16.4 trillion in debt and spends 40% more than the revenue it collects per year. This continues to be a highly debated topic within our legislative and executive branches of government. One reason the Federal Government’s major entitlement programs are difficult to control is the way they are designed. A second is that current budgeting process ignores long-term impacts of short-term expansions. A third is that these programs are not subject to regular review, like the other annual discretionary programs are. The means that Congress rarely evaluates the costs and effectiveness of entitlements except when it is proposing to expand them. Costs of healthcare continuing to rise, funding numerous war campaigns, and a broken tax system are all contributing to the widening deficit in the budget. It is quite clear that sacrifices must be made. The question remains: where do we begin? Background: Alexander Hamilton, the first Treasury Secretary, set up federal debt to pay off debt incurred by the Revolutionary War. Until the Great Depression in 1933, federal debt was used only to fund wars. In 1933, President Roosevelt began spending and raised the federal debt to around 40% of the GDP. From that point on, the federal debt has ranged from 122% of the GPD following WWII, to 50% of the GDP during the Cold War to the current value of 99.4% as presidential policies and goals changed (see Figure 1). During the end of the Clinton administration...
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...Paper * Depending on the time, the economy can have many financial stages. There are times when the economy is facing a budget deficit, which means the tax revenues in the government are lower than the government expenditures. The economy can also experience a surplus and high debt, which can also drain an economy. The state of our government can affect people from taxpayers, to the elderly who are collecting social security, to children needing medical and governmental benefits for their well-being. The government debt situation can be either an advantage to the population by lowering taxes, or a disadvantage by making taxes higher. * To know how taxpayers, future Social Security and Medicare users, and unemployed individuals are affected by the U S.’s deficit, surplus, and debt. It is important to understand the definitions of deficit, surplus and debt. Surplus occurs when there is more supply than demand, as in extra resources. Deficits occur when a government's expenditures exceed the revenue that it generates. Debt is an amount owed to another person or government in economics. * Taxpayers can benefit from a budget surplus. A surplus can create a reduction in the tax rate which leads to a higher consumer’s savings rate. The less taxes that consumers have to pay allows spending or savings in other areas. An increase in national savings (reduction in tax rate) also creates additional money that can be available for banks to lend. The more money banks...
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...conference on “American Economic Policy in the 1990s” held June 27 to 30, 2001 at the John F. Kennedy School of Government, Harvard University. The views expressed in this paper are those of the authors and are not necessarily shared by any of the institutions with which they are affiliated. We thank Al Davis, Peter Diamond, Edward Gramlich, Peter Orszag, Gene Sperling, and Lawrence Summers for comments on an earlier draft. Elmendorf was formerly Deputy Assistant Secretary of the Treasury in the Office of Economic Policy, and prior to that Senior Economist at the Council of Economic Advisers; Liebman was formerly Special Assistant to the President for Economic Policy at the National Economic Council; and Wilcox was formerly Assistant Secretary of the Treasury for Economic Policy. Table of Contents Page 1. Introduction 2. Budget Outcomes and Projections Improved Budget Picture Sources of Improvement 3. Budget Deficit Reduction: 1990 through 1997 OBRA90 OBRA93 What Did Deficit Reduction Ultimately Accomplish? The Republican-Controlled Congress BBA97 4. Entitlement Reform and Saving Social Security First Entitlement Commissions Social Security Saving Social Security First 5. Social Security Reform Options Using Projected Budget Surpluses as Part of Social Security Reform Investments in Private Financial Assets Potential Compromise Reform Proposals The 1999 State of the Union Social Security Proposal 6. Budget Surpluses: 1998 through 2000 The 1999 State of the Union Budget Framework Balancing...
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...Perspectives on the French Economy National Economic Analysis for International Business Glen Letterle Ingrid Smith Brooke Thedford Patricia Lewis Introduction The current French economy is a mixed system of public, private and state owned organizations. Although the government plays a larger role in funding and sharing some ownership with public firms, France continues to be both capitalistic and market-oriented. Frances current GDP is about 2.9 trillion dollars (U.S.), which grew by 2% from 2013. Their population is roughly 66.2 million people and the average income is high, around $44,000 per capita. Of the total population, about 56%, or 37 million, are considered to be total labour force. As of 2013, almost 10% (3.7 million), of the labour force were unemployed. France belongs to the financial regulatory environment of Autorité des marchés financiers (AMF), which, “regulates, authorises, monitors, and, where necessary conducts investigations and issues sanctions”. Congress created the AMF authority in 2003. According to the 2015 Index of Economic Freedom, “France’s economic freedom has waned as the size and reach of government have expanded”. This has been attributed to a decrease in the amount of youth working and issues with private sector expansion. The government provides many utilities, social programs, educational institutions and services while aiding in control of their markets through fiscal policies. France best fits the market-oriented structure...
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...1995International Monetary Fund Washington, D.C.PDF file (176K) also availableUse the free Adobe Acrobat Reader to view pdf files.ISSN 0538-8759 ISBN 1-55775-535-3 | | | | Guidelines for Fiscal Adjustment Fiscal Affairs Department International Monetary FundContentsPrefaceIntroductionWhy May Fiscal Adjustment Be Needed? The Impact of Fiscal Policy on Macroeconomic Policy Objectives Inflation External Current Account Growth Fiscal Adjustment to Ensure Sustainability Links to Other Policy InstrumentsHow Should the Fiscal Stance Be Assessed? Fiscal Impact of Alternative Methods of Deficit Financing Other Measures Used to Assess the Fiscal Stance The Sensitivity of a Fiscal Assessment to the Time Frame of Analysis Definition of Government Accounts for Macroeconomic Analysis Coverage of Government Operations Timing of the Impact of Fiscal Transactions Defining the "Overall Fiscal Balance"How Much Fiscal Adjustment Is Required? A Framework for Fiscal Adjustment Determining the Amount of Fiscal Adjustment Reducing the Fiscal Deficit Quality of AdjustmentHow Should Fiscal Adjustment Be Effected? Measures to Improve the Tax System and Increase Revenue Characteristics of a Desirable Tax System Design of Major Taxes Rationalization of Expenditure Policies Expenditure Reduction in the Short Run Structural Public...
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...been followed by a wave of governments defaulting on their debt obligations. Financial crises tend to lead to, or exacerbate, sharp economic downturns, low government revenues, widening government deficits, and high levels of debt, pushing many governments into default. As recovery from the global financial crisis begins, but the global recession endures, some point to the threat of a second wave of the crisis: sovereign debt crises. Greece is currently facing a classic sovereign debt crisis. Greece accumulated high levels of debt during the decade before the crisis, when capital markets were highly liquid. As the crisis has unfolded, and capital markets have become more illiquid, Greece may no longer be able to roll over its maturing debt obligations. Some analysts have discussed the possibility of a Greek default. To avoid such a default, however, the Greek government has introduced a variety of austerity measures and, on April 23, 2010, formally requested financial assistance from the other 15 European Union (EU) member states that use the euro as their national currency (the Euro zone) and the International Monetary Fund (IMF).Greece’s debt crisis has raised a host of questions about the merits of the euro and the prospects for future European integration, with some calling for more integration and others less. Some have also pointed to possible problems associated with a common monetary policy but diverse national fiscal policies. This report provides an overview of the crisis;...
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...levels of economic growth in the economy. The government’s fiscal stance has been effective in achieving sustained levels of economic growth in the economy through countering the impact of the Global Financial Crisis (GFC) and remaining globally competitive. The fiscal policy is a macroeconomic policy that influences resource allocation, redistributes income and plays an essential counter cyclic role to the business cycle through government spending, taxation and the budget outcome. This is achieved through manipulating government expenditure and tax collection in the Commonwealth Government’s annual budget which alters the level of economic activity...
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...Beng After studying this chapter, you should be able to understand: Public Budget Budget Deficits and Surplus Expansionary and Contractionary Fiscal Policy Discretionary and Automatic Fiscal Policy National Debts and Its Issues and Misconceptions Problems with Fiscal Policy : Macroeconomics According to Keynes, government has to intervene to stabilize the economy. Stabilization can be achieved in part by manipulating the Public Budget to increase output and employment or to reduce inflation. The Budget outlines the government’s taxation and expenditure plans for the coming fiscal year. The Ministry of Finance are responsible for the preparation of the budget. Sources of Revenues: Direct taxes on individuals and companies Indirect taxes on goods and services (gasoline, alcohol, tobacco, etc) Non-tax revenue (stamp duty, licenses, permits, etc) Malaysia: Sources of Revenue (in RM) 1990 2013 2014 Direct Taxes 35.2% 56.5% 59.1% Indirect Taxes 36.7% 16.6% 17.2% Non-Tax Revenue 28.0% 26.9% 23.7% Total Revenue 29,521m 207,913m 224,094m Source: Ministry of Finance Categories of Expenses: Operating Expenditure (emolument, pensions, debt servicing, grant to states, subsidies, supplies, scholarships, etc) Development Expenditure (security, social services, economic services, expenditure on goods and services). 1990 2012 2014 70.3% ...
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