EC140 Lecture Notes - Lecture 20: Real Interest Rate, Budget Constraint, Deficit Spending
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EC140 Full Course Notes
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Expenditures must be paid from net tax revenue or borrowing. Expenditure include spending and interest on the debt: g + i * d = t + borrowing. The budget deficit is thus: deltad = g+ i * d t. Primary budget deficits governments don"t have direct control over debit-service (i*d) primary budget deficit ignores debt service: primary budget deficit = g t. Canadian debt and deficits federal debt is roughly 30% of gdp provincial governments in canada also carry significant debt debt varies across provinces, but is getting close to federal debt levels provincial debts likely to continue to rise. Not all changes in deficits are policy decisions. Higher national income implies: higher tax revenue, lower transfer payments. Government spending and debt-service can be viewed as autonomous. Calculate a hypothetical deficit based on potential gdp, y* Government debt-to-gdp ratio reflects ability to pay. Empirical evidence not much direct effect on private savings.
