The problems encountered when calculating government debt
Inflation
Targets budget deficits are not calculated when adjusted for the effects of inflation in the calculation of government spending, it calculates the interest payments nominal interest rate, while this indicator should be calculated only real interest. Because nominal interest rates real interest rate plus the rate of inflation, the budget deficit should have been overstated. During periods of high inflation and large government debt, the impact of this factor is very high.
Assets invested
Many economists believe that government debt calculations need to subtract the total asset value of the extra. This is as simple as the handling of personal property: as a personal loan to buy the house, he could not calculate the budget deficit by borrowing that amount to subtract the value of the house. However, when calculated according to this method again encountered the problem of what should be the property of the government and their value calculated how, for example, highways, arsenal or spending for teachers education ...
the potential liabilities
Many economists argue that government debt calculations ignore the potential liabilities such as pension funds, social insurance payments that the government will have to pay for payments to employees or the government will have to pay the warrants for loans of low-income people, but in the future they can not afford to pay ...
the impact of government debt
On the government debt neutrality
there are two main views on government debt have an impact on the economy or not.
the traditional view that tax cuts be offset by government debt and stimulate consumption reducing national savings. The increase in consumption increases aggregate demand and national income in the short term but lead to less capital volume (due to reduced investment) and lower national income in the long term.
The view back Barro-Ricardo that tax cuts be offset by government debt does not stimulate spending even in the short term because no regular income increase of individuals that it just shifts the tax from the present into the future. The individual estimates that, now reduced taxes and government bond issuance to offset the deficit, then at some point in the future the government will have to raise taxes to pay the debt or printing money to pay off debts (which consequently accelerating inflation); therefore, it is present in order to save taxpayer money in the future or to buy goods and services will go up.
The above views were different, but the same stem from the behavior of consumers and thus when applied to the study of consumer behavior.
Regarding the performance of the impact from the government debt to economic growth
in recent years, most economists agree that in the long-term debt big government (its ratio to GDP is high) makes the growth of potential output slowed because of the following reasons:
If a country has huge foreign debt, the country is forced to increase exports to foreign debt repayment capability and thus reduced consumption.
A large public debt caused superseding effect of private capital, instead of owning stocks, corporate bonds, public ownership of government debt (government bonds). This makes the provision of capital depleted because of population savings were converted into government debt leads to higher interest rates and limited investment business.
Domestic liabilities but are considered less impact because on the angle economy as a whole, the governmental debt only nationals of their own country, however, if large national debt, the government was forced to raise taxes to pay debt interest. Taxes distort the economy, causing useless loss of social benefits.
In addition, there are some views that the government uses to regulate debt instruments of macroeconomic are null high productivity due to crowding out phenomenon (investment for government spending increases).
the government wants to increase public spending to stimulate demand, the issuance of government bonds. Issuing more government bonds, the price of government bonds decreased, as shown by the government to raise interest rates, the new bonds to mobilize buyers. Bond yields rose, the overall interest rate of the economy has also increased. This negatively impacts investment motives of the private sector, making them reduce investment. It also impacts positively on the engine of consumer savings, leading to reduced consumption. It also makes increasing domestic interest rates relative to foreign interest rates, leading to cash flows from abroad poured into the water causing increased exchange rate reduces net exports. In summary, although bond issuance increases aggregate demand, but the increase is not large because of the side effects reduce aggregate demand.
Considering the holding of government bonds as a form of fortune, when the increased government bond issuance will simultaneously have to raise interest rates, asset holders find themselves becoming richer and more consumers. The total effect of the bridge received
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