ECONOMICS

Deficit Spending



Deficit Spending

Introduction

The budget deficit is a situation in which the state revenues (excluding loan repayments) are less than its expenditure (excluding debt) over a year. This is a negative balance. It differs from the deficit because it does not include the balance of revenue and expenditure of other public administrations (local authorities and agencies including Social Security). A country where much of the population depends on the state, either as employees, contractors or grant recipient are not able to properly assimilate a significant reduction in public spending. The result will be a drop in incomes, consumption capacity, which ultimately affect economic growth.

Discussion

The budget deficit is reflected in new borrowing that the state must incur during the year, in addition to those used to amortize the bonds matured earlier. It represents, unless specific years (significant widening of the deficit crisis), less than half of the financing needs of the State. According to economists, the budget deficit may play different roles. For Keynes, it can stimulate growth and employment in an economy in recession. In contrast, the Liberals insist on the adverse effects of increased public debt (Morgan, 1995).

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 (Governmental Deficit Spending, 2012). 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. It means that Congress rarely evaluates the costs and effectiveness of entitlements except when it is proposing to expand them (Brembeck, ...