Glamor Economics

Chapter 93

Chapter 13 Section 3 The government will also be unable to make ends meet - the fiscal deficit

In 2004, Forbes announced a list - who is the best president of the United States in the 20th century?After the death of former U.S. President Ronald Reagan, this unresolved issue once again became the focus of debate among Americans.In the end, Clinton, who was considered by the American public to be the most economical, topped the list.

Why was Clinton voted the best American president in the 20th century?The reason is that the U.S. government has always been known for its fiscal deficits, and the deficits turned into surpluses during the Clinton era.

During the 8 years that Clinton was in the White House (1993 to 2001), the growth of the US gross domestic product (GDP) was very strong, with an average annual increase of 3.5%, higher than that of Jimmy?The level of Carter and Reagan when they were in office was only slightly inferior to that of Kennedy and Johnson when the U.S. economy took off.Moreover, during his tenure, the employment situation in the United States was very good, and the number of new job opportunities was far more than that of any post-World War II US president except Carter.In addition, Clinton is also very good at seizing the opportunity. He decided to raise taxes at the right time when the increase in per capita income in the United States had stagnated for many years and was just showing an upward trend.In the end, with one of the smallest government agencies under his command, Clinton achieved the strongest increase in US GDP since Johnson's presidency, and also put the US government in a real fiscal surplus for the first time since President Truman.

However, after Bush Jr. came to power, the economy was in recession, and he continued to use foreign troops, which led to another high deficit.The huge fiscal deficit led to a trade deficit, and the United States became the country with the most serious twin deficits in the world.

A fiscal deficit is a budget deficit. At the beginning of each fiscal year, the government of a country always formulates a fiscal budget plan for the year. If the actual implementation results are greater than the expenditure, it is a fiscal surplus, and the expenditure is greater than the income, it is a fiscal deficit.Theoretically speaking, fiscal revenue and expenditure balance is the best fiscal situation, but in reality, fiscal revenue and expenditure balance or have a slight surplus.If the country's finances are in a situation where it can't make ends meet, then this kind of expenditure difference needs to be written in red letters when accounting, which is the origin of the "deficit".There are two situations in which the deficit occurs. One is intentional arrangement, which is called "deficit finance" or "deficit budget", which is a type of fiscal policy; the other is that the budget does not design a deficit, but it is implemented until the end. There is a deficit, that is, a "fiscal deficit" or a "budget deficit".

In reality, many countries whose economies are on the rise need a lot of wealth to solve a large number of problems, and often appear to be unable to make ends meet, so deficit finance is inevitable.When residents' consumption is insufficient, the government's usual approach is to increase government investment to stimulate economic growth. However, long-term fiscal deficits will cause a great burden on the national economy and are not a long-term solution.In general, the following means can control the fiscal deficit.

First, use the balance over the years.

Using the surplus over the years is to use the surplus formed by fiscal revenue exceeding expenditure in previous years to make up for the fiscal deficit.The fiscal surplus shows that part of the fiscal revenue has not formed realistic purchasing power.In our country, due to the implementation of the bank agency treasury system, this part of the balance appears as an increase in fiscal deposits from the perspective of bank accounts.When the fiscal balance is used, it is manifested as a reduction in bank deposits.Therefore, as long as the balance is a real balance, there will be no problem of overdraft of the government's finances to the bank when the balance is used.However, fiscal balances constitute a source of credit funds for banks, which are used for credit expenditures as production develops.The use of the government's fiscal surplus means a reduction in the source of credit funds. If the bank's reserve funds are insufficient and the fiscal withdrawal cannot be ensured by appropriately shrinking the credit scale in a timely manner, it may lead to credit expansion and inflation.Therefore, in order for the government to use the surplus of the previous year, it must coordinate the relationship with the banks and achieve a good balance between fiscal funds and credit funds.

Second, increase taxes

Increasing taxation includes introducing new taxes, expanding tax bases and raising tax rates.But it has considerable limitations and is not a stable and reliable method of covering fiscal deficits.First of all, due to the stipulations of the tax laws, no matter which method is adopted to increase taxes, a series of legal procedures must be followed, which increases the time and cost of tax increases and is difficult to solve the urgent need of the government.Second, because increasing taxes will inevitably increase the burden and reduce the economic benefits of taxpayers.Therefore, taxpayers are extremely sensitive to tax increases and decreases, which makes the government's attempt to make up for fiscal deficits by increasing taxes often encounter great resistance, thus making tax increases undecided.The Laffer curve (see the Laffer curve in Chapter 17) indicates that tax increases are limited and cannot be increased indefinitely, otherwise it will cause serious consequences to the national economy.

Third, issue additional currency.

Issuing additional currency is a method to make up for fiscal deficits, and many developing countries still use this method today.But in the long run, inflation depends to a large extent on the growth rate of money. Excessive currency issuance will cause inflation and lead to vicious consequences.Therefore, using additional currency to make up for the fiscal deficit is only an expedient measure.

Fourth, issue public bonds.

It is a common practice in all countries in the world to make up for fiscal deficits by issuing public bonds.This is because from the perspective of the debtor, public bonds have the characteristics of voluntary, compensable and flexible; from the perspective of creditors, public bonds have the characteristics of safety, profitability and liquidity.Therefore, to a certain extent, the issuance of public bonds is beneficial to both the government and the subscribers, and it is easy to be accepted by the public to make up for fiscal deficits through the issuance of public bonds.

据美国财政部2009年10月16日发布数据显示，美国2009财年（2008年10月1日至2009年9月30日）联邦赤字高达1.42万亿美元，高于2008年财年的4590亿美元。

2009年2月1日我国财政部发布的去年财政收支情况显示，财政收入增速为19.5%，2008年财政赤字1110.13亿元。专家认为相比西方国家赤字率，我国依然较低。

[links to related words]

Deficit fiscal policy Deficit fiscal policy is a short-term policy used during the downturn of economic operation.In the short term, if the economy is in a state of underemployment and society's idle resources are not fully utilized, the fiscal deficit can expand aggregate demand, drive the development of related industries, and stimulate economic recovery.Deficit fiscal policy is a means of national macro-control. It can effectively mobilize social resources, accumulate huge social capital, support economic system reform, and promote sustained economic growth.

Fiscal risk refers to the possibility that the finances cannot provide sufficient financial resources to cause serious damage to the operation of the state apparatus. When this possibility becomes a reality, the mild ones will lead to financial insufficiency, and the severe ones will cause financial crises and loss of government credit.There is an objective and reasonable limit to the size of the fiscal deficit. If the size of the deficit is too large, it will lead to national financial risks.

To evaluate the risk of fiscal deficit, four indicators are usually used in the world: one is the fiscal deficit ratio, that is, the ratio of deficit to GDP, which is generally not more than 3% as the warning line; the second is the debt burden ratio, that is, the balance of national debt as a percentage of GDP The warning line is generally not more than 60%; the third is the dependence on fiscal debt, that is, the issuance amount of government bonds in the current year / (fiscal expenditure in the current year + repayment of the national debt due in the current year), and the warning line is generally not more than 30%. ; The fourth is the national debt repayment rate, that is, the national debt repayment of the current year/the fiscal expenditure of the current year, generally not exceeding 10% as the warning line.

(End of this chapter)