Consequences of fiscal deficit

Abstract

The main objective of this paper is to understand and to evaluate recently expressed popular anxiety about fiscal deficits. The paper begins with a discussion of problems involved in measuring the fiscal deficit. A general conclusion is that all interesting measures of the federal fiscal deficit have increased substantially over the past eight presidential terms and are likely to increase further in the near future.The paper goes on to analyze possible connections between fiscal deficits and inflation, economic growth, and fluctuations in the level and composition of economic activity. Fiscal deficit is the difference between current and capital expenditure and current receipts the debt trap. The fiscal policy is intended to play a key role in the prospective economic growth. It is not merely because of the fact that fiscal situation is a major component that determines the macroeconomic stability. Important conclusions are that of the monetary policy, inflation, and aggregate economic activity are all largely independent of the fiscal deficit, but that of the fiscal deficit can have major effects on the division of output between consumption and investment. Key elements in the analysis are the effects of taxation on consumption and investment demands and the relations between real and financial developments.

Determining Interrelationship Between Factors Impacting Foreign Direct Investment in Tourism: An ISM-based Approach

“…De Castro and Garrote (2015) examined the relationship between government expenditure and exchange rate, which again represents a classical relation shared by the two economic variables, wherein high government expenditure leads to an appreciation in the currency’s value. Most studies were done in this direction, concentrating on finding causality between fiscal deficits on economic factors, but none has drawn relationships that correspond to the government’s marketing-linked expenditure (Nimani, 2013). The kind of transitivity observed in the present study points towards factors that mediate the relationship between economic factors and government marketing expenditure (Abamu, 2019; Guimén, 2009; Santos, 2017).…”

Macroeconomic Effects of Budget Deficit in Nigeria

“…The impact of budget deficit through government debts on economic growth depends on how the debt fund is being expended. If the fund is used to finance capital and developmental projects such as transport system, power projects, water supply, human capital development (in terms of quality education, sound health care etc), the productive capacity of the country will be improved and will consequently lead to economic growth especially if the country has a high growth potentials (Nimani, 2013). Besides, the returns that would be generated from these infrastructures could be used to service and perhaps, repay the debt.…”