Page 22 - Banking Finance August 2023

ARTICLE

IMPACT

ANALYSIS OF

UNITED STATES

FISCAL DEFICIT

Introduction: Why government borrows?
Days before the US government could start to run out of Government borrows when the expenditure of a government
money and default on its debt, Congress has approved a deal is more than the revenue generated by the government in a
to lift the country's borrowing limit. US President Joe Biden given fiscal year. And this is known as fiscal deficit. So the fiscal
and Republican House Speaker Kevin McCarthy hammered deficit is the difference between the total revenue and total
out the agreement after weeks of high-stakes budget expenditure of a government in a financial year. Fiscal deficit
negotiations to prevent global financial crisis. This ended the happens due to events like a major rise in capital expenditure
month long drama in world financial domain. But it raises or deficit arising from revenue. It serves as an indicator of
several question in the mind of a common man. Few how well the government is managing its finances. A situation
example are, why government take debts? Why not they of fiscal deficit prompts governments to indulge in welfare
simply print money and spend? What is the impact of activities for the nation without any need to raise taxes.
government borrowing on a common man? Why there is a
limit being imposed on government borrowing? And so on… This concept is about the fiscal deficit that plays an important
We will try to answer few question here in this article. 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

22 | 2023 | AUGUST | BANKING FINANCE