Introduction
The rationale of the above paper is to outline the difference amid budget deficit and national debt while at the same time indicating their significance. The paper seeks to justify as to whether different governments in the global setting should operate with a balanced budget or not. In the article, budget deficit is defined as the amounts of cash spend in excess by the government over the government income generated from tax revenue during a set time as part of government expenditure (Furgang & Furgang, 2012). The shortfall in tax revenue is therefore compensated through borrowing or currency emission as may deem necessary. On the other hand, the national debt, as will be used in the above paper, indicates the total debt obligation of a central government over the years.
Main Body
Budget deficit in simple terms refers to a situation when a given government spends more that the amount of revenue collected from taxes. Therefore, the extra amount of cash used by such governments is obtained from issuance of bonds or selling of the same to the public. Different governments are made to increase the sum of money injected into the economy for various reasons. Some of the reasons that can make a government enhance its expenditure include a rationale to improve a state infrastructure, improving the education programs in a country, environment and desire to invest in research and development. According to Aliabadi et al., (2011) one of the reasons as to why a government may be made to incur deficit financing is the desire to put all resources into full utilization as one of the approaches of stimulating an economy through spending. Moreover, government spending is one of the policies that governments use to enhance job creation or experience significant economic growth. However, Marri et al., (2011) further explains that the concept should be considered as a short-term approach to avoid the growth of national debts that will strain the taxpayers’ effort. On the other hand, the national debt is the outstanding government debt that has accumulated over the years, and high levels lead to increased tax burden to the public.
It, therefore, means that accumulation of the government deficits over the year’s results in the development of national debt, which is a total debt obligation of a given state. However, to obtain the exact figure of national debt, it is worth appreciating that the cumulating government budget surplus over the years ought to be deducted. For example, in the U.S, the concept (national debt) refers to the interest-bearing (“IOU”) instruments, which are re-sold to bridge the gap (Štuopytė, 2004). The instruments include government bonds, treasury notes, and bills that are sold in regulated financial markets. Apparently, the above tools (IOUs) are often sold to the public and corporations so as to cater for the realized spending gap (Budget deficit) by the government during a specified period.
It is worth understanding that although budget deficit may seem like a bad thing, if well managed, it helps in stimulating economic growth especially in countries with weak economies. However, the concept is effective if used to achieve economic growth as a short-term strategy through enacting effective fiscal policies. The challenge experienced by overspending is increased in interest rates, which lead to increased tax burden on the people. It is, therefore, important to note that budget deficit has an influence on both short and long-term performance of an economy. Different scholars have affirmed that government spending has a multiplier effect, and with increased spending, it stimulates economic growth in diverse ways (Neaime, 2015).
Budget deficit composes of different aspects which include tax revenue, budgets and the level of spending experienced in a given economy. Therefore, tax revenue will indicate the amount of cash that is collected from a given economy by the state, and this includes both property and employment taxes. Moreover, the above aspect is the largest sources of funds utilized by any government in preparation of annual budget. A situation of the budget deficit is experienced when governments collect fewer funds as compared to the planned projects that need to be financed by the government hence calling for the need to borrow.
Apparently, a balanced budget is not effective in stimulating economic growth during periods of recession or surplus, more so when the level of aggregate demand is equal to full employment. As aforementioned, government spending has a significant influence on economic growth, and the matter should, therefore, be managed in the most efficient way (Neaime, 2015). A decision to make a government spend less cash will lead to a ballooning effect hence resulting in deflation.
The budget deficit is therefore regarded to play a significant role as together with the fiscal policy they can help steer significant economic growth plans. The strategies, therefore, lead to full employment of an economy and enhancement of the increase in GDP (Gross Domestic Product). Apparently, every government is striving to experienced full unemployment, an aspect that will lead to decreased level of unemployment and significant growth of the economy (Neaime, 2015). However, it is imperative to understand the concept of the budget deficit is managed by the development of effective fiscal policy tool and there is no definite time for starting or ending the attribute. Governments can be forced to spend more so as to meets its set plans in achieving economic growth resulting to increased cases of the national budget. However, deficits may at time arise from lack of investors in a given economy, an aspect that will lead to deflation hence forcing the government to intervene.
Globally, the budget deficit is stable, and the US is one of the countries with the largest debt around the globe. This is justified due to its large size and the fact that the country has a tremendous ability to pay taxes as compared to other countries across the globe. It is important to note that large national debts contribute to more spending, an aspect that scares investors and consumers due to the expectation of future loss (Marri et al., 2012).
Conclusion
The budget deficit and national debt cannot be avoided in any country irrespective of their state of economic growth and should thus be considered as part of life. However, efficient management of the fiscal policy tools helps in coping with the state of economic development of any country. The budget deficit is, therefore, a necessary aspect of any government and should, however, be managed to avoid the collapse of an economy. The above statement can be justified by the mere fact that the tool can be used to either build an economy or if not well utilized, destroy an economy. Effective monitoring and controlling of budget deficit encourage investment in a given country hence contributing to economic growth. The aspects contribute to the full employment of an economy leading to optimal utilization of government resources which is the utmost goal of every government.
References
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