Budget deficits and ways of financing it

The government of each state has faced a situation when there is a budget deficit. It represents such a state of the country's balance of payments , when the expenditure part is much higher than the revenue side, that is, a negative balance is formed. The budget deficit is an unfavorable situation, the emergence of which the state tries to avoid in all possible ways.

However, the methods of balancing the balance can also negatively affect the economy of the country. For example, if the amount of emissions is groundlessly increased, the rate of inflation becomes inevitable , which can subsequently lead to devaluation of the national monetary unit, and hence, to the economic crisis. And lending to the deficit by the central bank leads to an increase in public debt, which it is not able to return.

In order to understand how to restore balance of payments and eliminate the budget deficit, it is necessary to determine the main reasons for its occurrence. Often, the negative balance is the result of inefficient spending during the reporting period. In general, the government allocates large sums for the development of the economy, for the implementation of serious social or national programs, for the development of measures to protect in the event of adverse situations such as earthquakes, wars and other events. One of the reasons is the implementation of poor financial policies, a reduction in the taxable base, development of the shadow business. In recent years, the budget deficit arose due to the development of the crisis situation, the presence of large debts of the state to other countries.

When drawing up the planned balance for the forthcoming period, determine the maximum amount of the negative balance that can arise under the influence of the circumstances of this year. Of course, not always these data correspond to the actual, however, the government takes various measures to prevent adverse consequences.

Budget deficit and methods of its financing

As noted above, unsecured issuance and lending contributes to the equalization of the balance of payments. However, these methods are not considered effective, since in the next reporting period the negative balance can increase even more. A good regulatory instrument is the taxation sphere. By changing the tax rates for certain population groups, it is possible to significantly increase contributions to the treasury of the country. I would like to note that this tool is effective only with the introduction of short-term changes, since in the future a natural reaction to this state of affairs will be the development of the shadow market or a significant reduction in the production activity of individual industries.

Often, the budget deficit is reduced through a procedure such as sequestration. It assumes a consistent reduction in expenditure items in proportion to the revenue side. Some articles are not subject to sequestration, in particular, arrears in foreign economic activity, since this will be perceived as default. It is not recommended to apply this procedure in the social sphere, because this can cause an increase in social tension.

The method of issuing government securities was widely used, thanks to which the government borrows from the population their temporarily free funds. Internal borrowing is quite popular, as investors rely more on reliable, valuable government documents than on risky private entrepreneurs. In some cases, the government decides to sell part of precious metals or even individual plots of land.