StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

Deficit, Debt and Political Theory of Government Debt - Essay Example

Comments (0) Cite this document
Summary
Budget Deficit being highly dangerous vs. Ricardian Equivalence The theory of Ricardian equivalence is a theory of Economics by Robert Barro.The theory states that when a government proposes tax cut to increase consumer spending, it leads to a higher budget deficit…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER94% of users find it useful
Deficit, Debt and Political Theory of Government Debt
Read TextPreview

Extract of sample "Deficit, Debt and Political Theory of Government Debt"

Download file to see previous pages Those who support this theory base it on the following two assumptions: 1. A budget constraint for the government does not mean that the government will have a deficit forever. A tax reduction or increase in expenditure that leads to spending being higher than revenues means that the deficit will have to be financed through a future tax increase or decrease. 2. The second assumption assumes that consumers are rational and will not increase consumption due to a debt financed tax cut. Their being rational means that they will reduce their consumption, because they understand the government’s fiscal policies that the increase in government spending finance through debt, will lead to higher taxes in future. The above assumptions imply that lower taxes and higher government expenditure through increased debt will not affect the economy as a whole (Alesina & Guido, 1990). There are those economists who are against the Ricardian equivalence and argue that a budget deficit can be extremely dangerous for an economy. According to Ricardians, lower taxes today means higher taxes tomorrow. The opponents see the timing of the expected future tax increase to trickle up to a future generation....
More debt for the government leads to a higher budget deficit (Barro, 1974). Budget Deficit and Public Debt Public debt or government debt is the amount a government owes. A government needs money to finance its expenses. It finances through borrowing from the public by issuing treasury bills or bonds and borrowing from corporations, individuals and foreign governments. The public debt is the outstanding amount borrowed in the past but has not yet been repaid. The size of the public debt is determined by the cumulative amount of borrowing that the government has done. Budget deficit is the excess spending the government has incurred over its income. When the total expenses are subtracted from all income and there is a shortfall, this is known as a budget deficit. The government has spent more money than they can earn. When the income is more than the expenditure this is known as a surplus. The link between budget deficit and public debt is that when a government has a budget deficit it has to get money to finance the deficit and it does this by borrowing which leads to accumulation of more debt. The magnitude of the debt is measured by the debt to GDP ratio (Barro, 1979). Foreign investors will be interested in the debt to GDP ratio, as this clearly indicates the financial position of the economy. A foreign investor will invest in a country that can pay its debt and where the economy is growing. Factors determining an Explosive dynamic Debt to GDP Ratio Public debt increases due to excessive borrowing by the government from issuing treasury bills or bonds and borrowing from foreign governments, individuals and state corporations. GDP is the Gross Domestic Product of an economy and it is the total income from individuals, corporations and the government. Debts are ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Deficit, Debt and Political Theory of Government Debt Essay”, n.d.)
Retrieved from https://studentshare.org/macro-microeconomics/1466374-where-macroeconomists-disagree-ypdeficit-debt-and
(Deficit, Debt and Political Theory of Government Debt Essay)
https://studentshare.org/macro-microeconomics/1466374-where-macroeconomists-disagree-ypdeficit-debt-and.
“Deficit, Debt and Political Theory of Government Debt Essay”, n.d. https://studentshare.org/macro-microeconomics/1466374-where-macroeconomists-disagree-ypdeficit-debt-and.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Deficit, Debt and Political Theory of Government Debt

Bandura's Philosophy Theory

His memories are an accumulation of yesterdays. In yesterday's are written his dealings to others and to himself. He finds life more meaningful in the lives of others. His reason for living is to serve others because he learns more of himself by dealing, relating with and loving others. Hence his motto in life is: “Do to others what he wants others to do to him.”

Bandura’s theory confirms the reality of the experience. A man needs mirroring of others to tell him whether what he is doing is fine or not. The wife is the best critic of the husband and vice versa. This is what makes marriage a wonderful ground for discovery for the two is made into one yet uniqueness of each is still there.

Band...
7 Pages(1750 words)Coursework

Cultural History Versus Political History: The Varying Methods of the Two Fathers of History

Even though they have these similarities and have both been bestowed with the same title, these two historians drastically differed in their approaches.

Herodotus had another title bestowed upon him; he was also called the “Father of Lies.” Much of what is known of him has been gathered from his own writings as few other sources are available from his actual life. It should also be noted that the veracity of this information is in question as Herodotus was known to invent much in his own work, and it was sometimes the practice in Ancient Greece to attribute events from the life of one person to another; for instance, it has been questioned if the accounts of Herodotus’ exile are only due to the fact th...
10 Pages(2500 words)Essay

International Trade Theory

 Further to this, it is also believed that international trade can bring substantial economic welfare to the countries however still most of the countries do not view it as a favorable thing. Despite having a very promising and bright outlook, international trade has been largely viewed with suspension and it is because of this that governments impose barriers to restrict international trade. There can be many reasons behind this act of imposing restrictions or blocking international trade however there are also benefits on the other side too.

International trade has driven the attention of many of the brilliant minds in economics therefore the origins of the economic theory on international trade owe much to the c...
6 Pages(1500 words)Case Study

Social Theory in a Globalizing Age

A comparison between the followers of social theories and the followers of natural sciences (physics and chemistry) revealed that unlike followers of natural sciences social theorists don’t use any techniques to show the exact knowledge or skill. Instead, they prove their work or idea by suggesting a possible way of explaining the facts or arguments usually called hypotheses (Lemert, 2004).
By hypotheses, social theorists cannot easily prove their argument at a time but they require time to prove it. Social theorists are normally criticized for using the hypotheses. Deconstructionists or postmodernists, rigidly critical theorists, disagree with the criticism by mentioning that any research methodology is not 100% pure a...
10 Pages(2500 words)Assignment

Political Ideologies and the Environment

Man has lost touch with the environment to gather his own empirical evidence, study it vis-à-vis the knowledge handed him down the generations and make his independent judgment. Thus his thinking process is chained to the scientific and economic superstructure.
The early part of the twentieth century saw the emergence of the knowledge society. The transmission of knowledge propels social and economic change. Out of the knowledge, society grew the energy-guzzling and environmentally unfriendly consumer society. On the vestiges of consumer society now emerges the anxiety-laden risk fraught society Man, the main protagonist, knows little of his importance and is in haste to accomplish things, knowing-well the risk fraught...
6 Pages(1500 words)Assignment

Political Thought

In the nineteenth century, the term democracy still had uncomplimentary connotations, most of the time; some understand it as a system of mob rule. Now, however, we are all democrats. Liberals, conservatives, socialists, communists, anarchists, and even fascists are all eager to proclaim the virtues of democracy and to demonstrate their own democratic credentials. Indeed, as the major ideological systems faltered and collapsed in the late twentieth century, the flames of democracy appear to burn yet more strongly (Huth & Allee, 2003). As the pull of socialism paled, and the intrinsic worth of capitalism has been called into query, democracy appeared as possibly the single unwavering and lasting principle in the postmodern poli...
6 Pages(1500 words)Assignment

Strategies of the South African Government

Maslow has argued that security and safety are required by all human beings (Boeree 2006). According to the Federation Internationale de Football Association (2009), Uruguay was the first nation to host the Fifa World Cup. In 2010, South Africa would be the first African nation to host the next World Cup. But Euromonitor (2009) considers that South Africa is a country with a significant rate of insecurity that would influence the trip to South Africa. Various security strategies will have to be reviewed by the South African Government in order to implement security and safety during this big event (Republic of South Africa, 2008). To accomplish the safety of the tourists during the World Cup 2010, many South African cities have in...
17 Pages(4250 words)Research Proposal

Free Cash Flows Theory

These are not hard and fast rules in determining the capital structure which should best affect a firms value. These theories lay down the benefits and the costs when a firm chooses what it sees as an adequate mix to maximise the shareholders value.

One of the implications where this research can lead include the possibility of the effectiveness in maximising shareholder value by employing two or more theories in capital structure decisions. Because these theories are more conditional by nature, probing which combinations when used for capital structure decisions are more effective in arriving at the goal of maximising firm value can be another subject for further research.
The role of capital structure in increasi...
11 Pages(2750 words)Case Study

Management Theory and Practice in the Early Childhood Education Industry

...Management Theory and Practice in the early childhood education industry This Report applies management theory into practice in the early childhood industry, especially in the context of women leaders. Management issues play a significant role in the academic sector, because early childhood professionals need higher levels of motivation in order to avoid burnout . As pointed out in a study by Osgood and Halsall (2007) where they carried out research to examine the position of women in leadership or management positions, a “glass ceiling” exists for women in the academic setting, which could significantly impair motivation. Since many of the individuals employed in the early education sector are women, addressing this issue is even more...
6 Pages(1500 words)Coursework

American Political Communications

.... The ads that intend to leave a positive impression about the candidate emphasize accomplishments and their good qualities. Other ads incorporate disturbing statistical evidence, visuals or sounds to leave a negative effect about he opponent. Negative ads mainly incite the fear among people about what could happen if that candidate were to win. The advertisement that has been analyzed in this paper “disarray” (September 2009) is a negative political advertisement which intends to affect the minds of people regarding Barack Obama’s health plan. It may be categorized as a negative ad since it intends to leave the impression that the democratic government might not be able to handle the issue and has been issued by the national republican...
6 Pages(1500 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Deficit, Debt and Political Theory of Government Debt for FREE!

Contact Us