Chapter 18-Deficit Finance Public economics
1 Chapter 18 – Deficit Finance Public Economics
Introduction Besides taxation, the governments other major revenue source is borrowing In this lesson we will Discuss problems with measuring size of debt Who bears the burden of the debt When is borrowing a suitable way to finance government expenditure
2 Introduction • Besides taxation, the government’s other major revenue source is borrowing. • In this lesson, we will: – Discuss problems with measuring size of debt – Who bears the burden of the debt – When is borrowing a suitable way to finance government expenditure
How Big is the Debt? Definitions The deficit during a time period is the excess of spending over revenues The surplus during a time period is the excess oT revenues over spending Some items are off-budget, like the revenues and expenditures associated with Social Security
3 How Big is the Debt? • Definitions: – The deficit during a time period is the excess of spending over revenues – The surplus during a time period is the excess of revenues over spending • Some items are off-budget, like the revenues and expenditures associated with Social Security
How Big is the Debt? Thus, one could modify the terms to - On-budget deficit (surplus) Oif-budget deficit (surplus) In 2002, the on-budget deficit was $317.5 billion, while the off-budget surplus was $159.6 billion. This gives a total deficit of $.8 billion
4 How Big is the Debt? • Thus, one could modify the terms to: – On-budget deficit (surplus) – Off-budget deficit (surplus) • In 2002, the on-budget deficit was $317.5 billion, while the off-budget surplus was $159.6 billion. This gives a total deficit of $157.8 billion
How Big is the Debt? Table 18. 1 shows the total federal budget deficits(including off-budget items) for a number of years Both in absolute size Relative to GDP
5 How Big is the Debt? • Table 18.1 shows the total federal budget deficits (including off-budget items) for a number of years – Both in absolute size – Relative to GDP