Question

In one to two pages discuss a way out and way forward regarding chronic budget deficits. In your own words. Please if you can write a paragraph. I put this question up 3 times and its been copy past and not explained well, or put in there own words. Anything will help please. Economics

Answer 1

Budget deficis happens when government spending is more than government earnings. government spends on current expenses which is day to day payments, interest on borrowings. Government also spends on capital heads like varius schemes, infrastructure buliding etc.

Government earns through taxes, toll, fees, stamp selling and profits of government companies.

As governments are expected to drive economies, generally spending is more than earnings. It creates fiscal deficit. Many governments try to keep it in control. Example-India has a law to kep it below 3% and India is largely successful to keep it within that limit.

It is clear that way to reduce fiscal defict is to reduce spendings or increase earnings. Generally earnings can be increased by increasing taxes. However, this is not a popular way as people do not prefer this and governments are worried for reelections.

Decreased spendings may also affect asset creation and hence is not popular as development is not seen then.

It is clear that governments have to follow financial prudence to control deficit. Reducing spendings on non productive expenses, cutting down schemes and run cost beneficial schemes are immediate ways. Governments can also sell government companies which is called disinvestment also raises money. Government can also restructure government companies to raise revenue. Central banks can also pay dividends to government to reduce deficit.