Causes and effects of deficit financing
As we know, the main source of public income is tax, cost, price, special assessment, rates, gifts etc., etc. If for a certain period of time, government expenditure exceeds the government’s income and deficit is fulfilled by borrowing, this is called financing deficit or income to create finance. To have a significant expansion effect, the Public Investment Program must be financed by borrowing than with taxation. This type of loan or loan expenditure is popularly called deficit financing.
The deficit financing is said to have been practiced if the country adopts one or all the methods mentioned below:
(a) The government refers to past cash balances.
(B) The government borrows from the central bank to government securities.
(c) The government creates money by printing paper currencies and thus fulfilling expenses for acceptance.
(d) The government borrows externally.
Deficit financing is considered a weapon that is very dangerous by classical economists. However, modern economists bend towards him and recommend it to be used to accelerate economic development and achieve high-level jobs in this country.
The problem that must be completed here is:
(i) Do income income must be adopted to increase total effective demand.
(ii) If the deficit financing is desirable to ensure a high level of work, the extent to which it must be done.
(iii) What is the effect that is good and bad?
Deficit financing is being carried out by developed and underdeveloped countries. Developed countries use it as an instrument of increasing effective demand while the retarded countries hire it to increase the rate of capital formation.
The scope of financing deficits to accelerate economic growth in the backward economy is very bright because they are trapped in a devil’s backup. They use funds for investment when state resources are inadequate to begin the takeoff process. So there will be a need for deficit financing.
Less developed countries are faced with the following problems:
(i) The level of population growth is faster than the rate of economic development.
(ii) State income received through taxes, costs, etc., is not enough to provide full work to the workforce.
(iii) Per capita income is very low and as well as the capacity to save.
(iv) Overseas loans for development purposes not without string and also not available in the desired amount.
(V) There is a scarcity of capital stock in this country.
(vi) People do not have the ability of initiative and entrepreneurship.
(vii) Most people are wasteful and there are less voluntary savings.
(viii) Most populations live in villages and pay attention with their lot.
(IX) The government cannot cause people’s displeasure by increasing tax rates beyond certain limits. It also cannot impose additional taxes for the same reason.
(x) So there is too much tax avoidance.
In conditions stated above, readers can easily visualize the state of affairs faced by the state of the state behind. There is still no government who wants to be a silent audience and wants the desire that people’s living standards must rise in a period of time as short as possible. This will try to find money from blue if necessary to spread the economic development of the country. Here the deficit financing came to save him. The state uses this instrument to lift the economy from depression and to accelerate economic development in this country. However, if the country can increase the volume of resources by increasing tax rates, imposing additional taxes or mobilizing enlarged savings, it is not desirable to adopt deficit financing because it is a very subtle instrument.
