IMPACT ANALYSIS OF UNITED STATES FISCAL DEFICIT

Days before the US government could start to run out of money and default on its debt, Congress has approved a deal to lift the country's borrowing limit.

- Dr. Deepak Kumar

Introduction:

US President Joe Biden and Republican House Speaker Kevin McCarthy hammered out the agreement after weeks of high-stakes budget negotiations to prevent global financial crisis. This ended the month long drama in world financial domain. But it raises several question in the mind of a common man. Few example are, why government take debts? Why not they simply print money and spend? What is the impact of government borrowing on a common man? Why there is a limit being imposed on government borrowing? And so on... We will try to answer few question here in this article.

Why government borrows?

Government borrows when the expenditure of a government is more than the revenue generated by the government in a given fiscal year. And this is known as fiscal deficit. So the fiscal deficit is the difference between the total revenue and total expenditure of a government in a financial year. Fiscal deficit happens due to events like a major rise in capital expenditure or deficit arising from revenue. It serves as an indicator of how well the government is managing its finances. A situation of fiscal deficit prompts governments to indulge in welfare activities for the nation without any need to raise taxes.

This concept is about the fiscal deficit that plays an important role in the economy of a nation. It can occur due to a major rise in the capital expenditure required for creating long term assets or providing financial assistance to poor farmers, labourers and other vulnerable sections of the society. The government finances these deficits by borrowing money from the capital markets. They can do this by issuing bonds or from the central bank. A high fiscal deficit every year hints that the government has been spending beyond its means. Economists need to keep an eye on the fiscal deficits to determine how much the government is exceeding its income.