State budget deficit: causes, consequences for the economy and...

State budget deficit: causes, consequences for the economy and ways of repayment

Reasons and consequences for the economy of the deficit of the state budget

If the economy is in a state of equilibrium, then the equality of savings ( S ) and investments ( I ): I = S . In a more detailed and close to practice form, the macroeconomic equilibrium condition can be represented as S + T = I + G, because to household savings ( S < ( T ), and public spending is added to private investment ( G ).

The last equation in the transformed form can be represented as follows: S - I = G - T. According to this formula, the difference between savings and investments equals the difference between public spending and revenues i.e. state budget deficit, if the state's current expenditures exceed its revenues or state budget surplus , if current state revenues exceed it costs. Excess of savings over investments goes to cover the budget deficit more often in the form of government loans, which we will consider in more detail later.

The budget deficit arises from the lag in the growth rates of budget revenues in comparison with the increase in budget expenditures. The main reasons for the emergence of the budget deficit are given below.

1. Denying the dogmatic demand for an annual balancing of the expenditure and revenue parts of the budget, JM Keynes justified, as previously noted, the possibility of consciously allowing a budget deficit to stimulate economic growth.

2. Large-scale structural transformations in the economy, such as, for example, industrialization, require large centralized investments in it. At the same time, the state can admit a budget deficit, which will be compensated by its future surplus in a transformed, mature economy developing on a new economic basis.

3. No national economy is immune from wars and large-scale natural disasters. Overcoming the consequences of these cataclysms requires significant government spending, which inevitably generates a deficit in the state budget.

4. The economy of any country periodically experiences various crisis situations. We are talking about cyclical, institutional, transformational, structural crises. The way out of crises is usually accompanied by an increase in public spending, which leads to a budget deficit or an increase in the existing deficit. Thus, overcoming the energy crisis of the 1970s. in conditions of a sharp increase in energy prices, it required large-scale financing for the development of its own fuel and energy complex in a number of developed countries.

5. The state-led militarization of the economy in peacetime, known in the former USSR under the term "arms race", the hypertrophied development of the military-industrial complex can also cause a large and sustained budget deficit. >

6. Lack of political will, determination and foresight of the current government, its inability to clearly control and regulate the situation in the financial sphere.

The fact is that expenses often bring additional votes in elections, whereas higher taxes lead to political disgrace. Formally, politicians and their voters oppose the budget deficit, but concrete proposals to reduce spending and raise taxes meet more resistance than support. The greatest opposition is the reduction of the program of social benefits.

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