...Implications of Budget Deficit in India When a government plans to spend more than its income, it resorts to financing the additional spending through a budgetary deficit. So, traditional definition of a budget deficit is the difference between total government outlays and the revenue receipts. But a complete and technical definition of deficit would be 'the difference between size of the government debt at the end of the year and the corresponding size of the debt a year later. Thus, the budget deficit is funded by a national debt. A healthy practice for any government is to have a balanced budget, but Keynesian economists propose deficit budgeting to overcome a financial crisis. Even with deficit budgeting, the healthy way is to have revenues exceeding non-interest outlays and this excess must be good enough to pay for the interest on government debt to avoid a rising ratio of debt to GDP. In case of India with a 210 billion dollar budget, its deficit pegs at about 6.8 percent of GDP, and when combined with those of state governments, it reaches a hefty figure of 10 percent of the GDP. Comparatively, leading countries of the world work with an average budget deficit of 4 percent of their respective GDPs. India borrows about 10 percent of its GDP every year. With current debt on India being about 75 percent of its GDP, it is required to pay a heavy interest on the borrowings. Implications of heavily deficit budgets in India are - Economic growth in impeded...
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...Student’s Name Institution Instructor Date Budget Deficit Budget Deficit Budget is an estimate of the income and expenditure for some country for some set period of time say one year. Budgeting is vital in an economic perspective for the economy that desires to meet the needs of its people. Budgeting also aids an economy to hypothesise and attain the best output and revenue from the dealings in the production process. As such budgeting and forecasting serve the basic role of the economic progress of the economy based on the operations of the countries to attain the millennium development goals. Basically, the budgeting approaches used by the economy may create the deficit or at some point result in the surplus. Reduction in tax payments, increased unemployment, poor planning, increased military spending and poor projection and underestimations result in the budget deficit. During periods of economic recession in some country budget deficit is also likely to be experienced. Expansionary fiscal policy may lead to budget deficit since it involves increase in government spending. Such condition is very challenging to the economic growth and development and may also increase the rate of borrowing of a country to surpass its budget (Aaron, 2014, pp. 1). Budget deficit can be explained as the difference between the government revenue and the government expenditure calculated over some set period (one year). It occurs when the expenditure has exceeded the income for some set...
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...Our country has Budget deficits and government debt have significantly increased in many countries around the globe over the past 20 years, and almost all these countries are now faced with the challenge of building back up, their economy. The current problem of budget deficits and public debt has come about mainly because the growth in government spending has exceeded the growth of goods and services. “While the average ratio of tax revenue to GDP in industrial countries increased from 28 percent in 1960 to 44 percent in 1994, the corresponding ratio for government expenditures rose from 28 percent to 50 percent.” (McDermott & Wescott, 1997). Given the high levels to which taxes have risen and the danger of stunting growth by raising taxes further, to say nothing of the political consequences of trying to do so, it is reasonable to say that reducing government spending offers the best means, if not the only means, of eliminating these fiscal monetary inequalities. Reducing government spending is not as easy as it may sound. According to traditional Keynesian theory, if you manage to reduce the government deficit, you run into another problem: the country might slide into recession. Why is this? Budget deficits, despite their unfavorable reputation, are not always bad. They at sometimes can indicate the government is buying goods and services, is paying wages to its employees, and is making transfers of money to its needy citizens. In doing so, it is putting money into...
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...Efforts to Reduce the Budget Deficit Melissa Hillard ECO203: Principles of Macroeconomics (BAJ1347A) Instructor: Kathryn Armstrong December 9, 2013 Efforts to Reduce the Budget Deficit Between the years of 1980 and 1993, budget deficits amounts increased and the national debt tripled. The public debt in this country has grown by more than $500 billion each year, in July 2012 nominal GDP was $15.8 billion. The ratio of debt reached a 10 year low in 1981 (32.8%) and went to 73% in 1993. By 2012 it was almost 100%. The actions taken by Congress since 1985 and the current debates between the Whitehouse and Congress, including what measures are necessary to address spending and revenue, will be reviewed. In 1981 President Reagan’s advisors proposed a 30% reduction in personal income taxes and an even bigger cut in corporate profit taxes. The actual result was a 25% cut in personal income taxes. At the time there was a conflict as to why the taxes were cut. There were several groups that had different opinions as to why President Reagan cut the taxes and what his expected results were. “Some supply-side economists argued that the increased incentives to work, save, and invest would actually result in increased tax revenues” (Amacher & Pate, 2012). Though there were some effects on tax revenue, there were not enough to offset the original tax cut. A second group believed that the purpose of the tax cut was to limit the revenue source that the government was...
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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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...the substantial increase in human resource spending has affected the entire composition of the revenue side of the budget. Section 4.3 - Emphasis of Budget Deficits The transformation of the federal budget over the last sixty years has revealed the evolving view of the government’s role in the U.S. economy. Prior to 1960, budget deficits were a rare occurrence except in times that demanded serious funding, such as periods...
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...Throughout the past, the United States has operated under a budget deficit. A budget deficit is the amount of money which the government has to raise by borrowing or by emitting banknotes, also known as currency emission, in order to makeup for the shortfall in tax revenues. Due to spending more money than they have, the United States has racked up billions of dollars in national debt. The national debt is one of the most important public policy issues that America faces today. Ideally, national debt was meant to aid in the long-term growth and expansion of a country. However, because of continuous overspending, the United States is at risk of significant reductions in economic growth and high public debt. High public debt threatens to drive...
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...Abstract The aim of this work is to talk about the impact of alcohol and drugs on the human body. The scale and depth of the problem require a wealth of information to the truth about alcohol, drugs, factors that contribute to them, reached everyone. In this research, first of all I would like to understand and know how in life there are bad habits, how they affect the body and why it is so difficult to get rid of them? The problems associated with alcohol, drugs, ceased to be today, medical or moral problems only individuals, they affect the health, well-being and security of the entire population, in fact, influence on national development. Introduction All the vices of idleness. In the last decade in our country dramatically worsened the problems. As I see, the problem of "bad habits" is most relevant in our time, and struggle against them - it's not only the task of the state as a whole, but each individual citizen. The need to prevent "bad habits" - is, first of all, information about their devastating effect on the human body, especially on the body of the younger man. And the sooner we start the prevention of "bad habits" among the younger generation, the faster will be able to avoid unfortunate consequences (serious illness, disability, broken families, suicides, etc.) to increase the birth rate, to maintain the size of our nation. The main reason for drugs and alcohol use – personal problems . The drug promotes relaxation, openness, mutual arrangement, talkativeness...
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...| The Effects of Running a Surplus or Deficit Budget | ECO 372 | The current state of America’s fiscal policy is of major concern for the majority of the populace with the constantly increase of health care, gas, home interest rates, and staggering unemployment number, some are wondering if this nation will survive. Even many fiscal experts are forecasting that The United States is on road to fiscal disaster which seems to confirm the fears of the nation. Compounding the problems is an elderly populace and increasing deficit problem, a growing segment of government spending apportioned to interest expenditures and entitlements for the upcoming years resulting in plunging government's prolific investments and pushing out private shares. The deliberation of this paper is centered on how and why the U.S.’s deficit, surplus, and debt influences on the taxpayers, impending social security and Medicare users, the unemployed, University of Phoenix students, America’s financial reputation on a global scale, national (export) automotive manufacturer, Import of Italian clothing company, and gross domestic product (GDP). The near term objectives of the paper to convey information as complete glaze of US fiscal policy and how the current fiscal policy influences the nation. American taxpayers play a major role in the economy; this is why there is so much commotion about the millions of immigrants who do not pay taxes. The role of a taxpayer and the role of the economy go hand...
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...Federal Budget Deficit/Surplus I'm looking at a comment in speech when Obama talked about the federal budget. Obama reached a deal to increase spending over the next two years by cutting some social programs and raise the federal borrow limit. He reached an agreement that would raise spending by $80 billion and an extra 32 billion dollars for the emergency war fund. By increasing spending, it would make cuts in medicare and social security disability benefits, etc… The $80 billion is just over one percent of the yearly annual budget. Obama uses Obamacare as a way to lower the debt in a way the differentiating taxation. President Obama is concerned with the people of the United States, but he is still trying to raise the money by making...
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...about deficits, surpluses, and debt in relation to the macroeconomic health of the United States. The group as a was very comfortable with the discussion of the week while learning new information about the health of the economy. The following is a summary of what the team learned in regard to deficits, surpluses, debt, and the health of the economy. Budget Deficits Budget deficits occur when government expenditures exceed the amount of revenue coming into the economy through income and taxes. A deficit is a summary of how the economy measures the state of using and accounting procedures. Since World War II, the United States government has run a large amount of deficits, as opposed to surpluses. A deficit can be good or bad, depending on the specific condition of the economy. When the government runs a budget deficit, the goal is to improve the economy. When the economy is not progressing at a rate the country expects, the government will spend money to help stimulate economic growth. If the government spends money to improve revenue for the long-term, both the government and society benefit by the added debt. A budget deficit can help businesses create more jobs to limit the amount of unemployment and improve consumer income. The debts accumulated may be the result of spending on worthwhile projects like road repair or important services like education. The government is also spending to establish programs for the longevity of the nation. On the other hand, a budget deficit...
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...economic period trailing the Great Depression. On his first term, President Reagan’s main objective was to address different economic problems through tax cut, decreased nondefense spending, increased defense spending and balanced budget. His policies brought success in stimulating the economy. He was able to improve the lives of the people and certain concerns during those times such as recession, unemployment and inflation. In 1985, while efforts have been made by President Reagan to uplift the economy, the US government was still beset by unbalanced budget due to deficits. Thus in his second term, he focused more in addressing this problem. However, the economic policies he implemented appeared to have created a setback in the country’s budget. In addition to the existing deficits prior to his term, deficits continued to increase. Objectives This paper aims to give an analysis on the cause and effect of the deficit problem Reagan faced in his second term and an analysis of the strategies he implemented in solving it. This paper also offers alternative strategies that would allow Reagan to reduce the deficits and balanced the budget. Analysis The Causes of the Budget Deficits This paper discusses three major cause of the budget deficit during Reagan’s term – tax cut, military spending and recession. The administration’s policy for tax cut was implemented to break the postwar trends to help the people and make an economic turnaround. Tax is the major source of...
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...how deficits, surpluses, and debt in relation to the macroeconomic health of the United States. A government deficit is when federal spending is greater that the tax revenue received for that year. Each year the deficit is added to the current debt, the Treasury must sell bonds to raise the money to cover deficit. At first, the deficit spending does boost economic growth. As we have read in the previous weeks, government spending does have a positive effect on the economy; it lowers interest rates, increasing the money supply available, and creates jobs, which lowers the unemployment rate. However, if the deficit is added to the national debt this is very damaging to the economy because the government can let the value of the U.S. dollar fall, this would make the debt repayment cheaper and less expensive. This will have a negative effect on foreign government and how investors view the strength of our Treasury bonds, and they will be reluctant to purchase Treasury bonds, this will cause an increase in the interest rates. When creditors become concerned about a country's ability to repay its debt, they demand a higher interest rate to provide a greater return on this higher risk investment. Treasury bills, notes and bonds are used to finance budget deficits, if foreign government and investors do not purchase them, the U.S. will have difficulty raising money to continue to finance the deficit On the other hand, a budget surplus is the opposite of a budget deficit. A...
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... Jingze Yuan The government budget deficit is the difference between government revenue (mostly taxes) and government spending; the current account deficit is the difference between exports and imports (there are some adjustments for items such as funds sent abroad). Both deficits occur when someone is spending more than they earn; during the last 25 years the US government has tended to spend more than it collects in taxes and US residents have tended to spend more on imports than they export. A nation’s current account deficit reflects excess domestic spending. Equivalently, a current account deficit equals the excess of domestic investment over domestic savings. Regarding the Twin Deficit approach, Bernheim argues that if world capital markets are integrated and Ricardian equivalence does not hold, an increase in the budget deficit will almost certainly contribute to the current account deficit. A regression of the current account on the budget deficit (both scaled with GDP), while controlling for business cycle effects using growth and lagged growth gives a coefficient of 0.3 on the budget deficit in the case of the U.S. and similar figures for Canada, U.K. and Germany. Furthermore, tax smoothing implies a one-to-one relationship between the current account and the fiscal deficit. The underlying mechanism is that a constant tax rate induces the budget deficit to move one-to-one with public spending and therefore with the current...
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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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