Public Adminstration- Debt Managment
In economic terms, deficit refers to the amount of shortfall of revenues below the level of expenditures for a given time, usually one fiscal year. The government obtain revenue through taxes such as social insurance and income taxes. On the other hand, the government is subjected to various expenditures such as provision of social security and defense (Dave, 2014). When the government spends a lot of money that exceeds the amount of the money collected though taxes, it may run a deficit for that particular budget year. For instance, if the federal or state government collects money up to 10 trillion US dollars and spends about 13 trillion US dollars, then the deficit ran is 3 trillion US dollars. In this situation, the government may become bankrupt (Dave, 2014).
When a government runs on deficit each year, it must borrow money in order to meet the expenses. When this is repeated for several budget years, a debt is accumulated. Therefore, it can be said that debt is the sum of deficits accumulated over several budget years. A debt may be long-term or short-term depending on the period it is expected to be repaid. It is important to note that all debts per year are payable with interests. This describes the debt service. Most governments across the world run huge deficits and debts. For example, the United States tops in debts amounting to 16 trillion US dollars (Dave, 2014).
What many people assume is that the government does not incur any debt if it spends less than the amount of money collected through taxes. For a matter of fact, debts are still present despite the government running surplus (Dave, 2014). To reduce the deficits and the sum of debts accumulated, the government must reduce expenditures and/or raise the rate of taxes. Deficits may be reduced when increased tax revenues are generated. This is only possible through strengthening the economy.
References
Dave, M. (2014). Definition of Debt and Deficit. Retrieved from http://www.davemanuel.com/investor-dictionary/debt-vs-deficit/
Do not know exactly what you need?
Get a Free Quote for no Extra charge! Simply send us your paper instructions and our Customer Support Agents will Evaluate your assignment!
Evaluate