Question

1. Why does the federal deficit affect domestic programs?

2. What would be the benefit of a balance budget amendment?

3. Do sports facilities/stadiums justify financial support cities and states?

Answer 1

1) Federal deficit is the deficit in government budget which is the difference between revenue and expenditure. When there is a federal deficit the expenditure of the government is greater than the revenue it receives from tax as well as non tax sources. There are mandatory programs including social security Medicare medicaid and unemployment insurance. Besides there are other programs which are not mandatory by nature but are important from the perspective of raising the social welfare including poverty alleviation programmes and schemes related to agriculture. Increasing fiscal deficit impedes the ability of the government to spend on these domestic programs. The focus then shifts on reducing the deficit and this causes the spending on domestic programs to reduce primarily. Therefore it is necessary that Federal deficit is not allowed to swell up by the time.

2) a balanced budget amendment will impose a fiscal discipline on the government so that no extravagant government is spending will be persisted in the economy. The balanced budget amendment requires the government to run a balanced budget which implies that government will not be able to increase its spending more than the revenue it is earning. In any particular year if it has to increase its spending then it has to collect more revenue to maintain the budget in balance. However there are certain disadvantages especially when the economy is suffering from recession and the government is expected to provide fiscal stimulus.

3) sport facilities on Stadium are able to generate externalities positive by nature. When more and more people from other cities arrive they are likely to spend and enjoy the match is being played. This increases the GDP of the state or a particular City and helps in increasing the tax as well as non tax revenues from that region. Government experiences and increase in its revenue when it construct stadiums because stadiums are able to attract spectators from different parts of the country. This means the financial support that the government is expected to show for the construction of stadiums is justified.