Question

justify the position in your own words.

Pro: The Government Should Balance Its Budget. Government debt places a burden on future generations of taxpayers who must choose to pay higher taxes, cut government spending, or both. Current taxpayers pass the bill for current spending to future taxpayers. Moreover, the macroeconomic effect of a deficit is to reduce national saving by making public saving negative. This increases interest rates, reduces capital investment, reduces productivity and real wages, and thus, reduces future output and income. As a result, deficits raise future taxes and lower future incomes. While deficits are justified during wars and recessions, the increase in the deficit from 1980 through 1995 occurred during peace and prosperity. The most recent deficits may be due to the recession of 2001 and the war on terrorism.

Answer 1

A deficit is said to have taken place, wherein the spending by the government has exceeded the net receipts which it has from collection of taxes or from any other sources from abroad or domestic economies. As this happens, the country is left with few options which include raising the rates of taxes in the future to printing notes and devaluing a currency, wherein the currency then holds a lower value than it was earlier.

As an investor, you would prefer investing in those countries wherein fiscal deficit is as low as possible or is even positive because you are sure of your investments bringing in sufficient returns. Deficits lead to borrowing by the governments in order to finance its expenditures which go beyond its income sources.

As this takes place, investor confidence is lowered down and we see that for developing countries and underdeveloped ones this is the biggest problem why companies do not prefer investment as the fiscal deficit is higher. This indicates that the government has been inefficient or there is prevalence of conditions which are not good enough for business owners that the tax collections remain on the lower side as compared to expenses.

Further, these loans are repaid by the government from future increases in taxation which are extremely harsh on the future generations as this would lead to a situation where in the present is financed by the future and the extent of damage remains unknown.

Thus, we can conclude by saying that low level investment takes place in economies that do not focus on increasing their revenue and reducing costs today, and the cost is paid by increasing the level of taxes which is bad for business and for exchange rates as well which is done to repay loans which are taken during a deficit.

To maintain investment levels and to ensure that confidence in the economy is maintained and future generations do not bear the costs of rash decision making by the government it is essential to maintain fiscal balance and to ensure that only during recession cycles, natural calamities such as the corona virus pandemic or war like situations should it be allowed to exist.

Please feel free to ask your doubts in the comments section.