The government of each state was faced with a situation where a budget deficit arises. It represents such a state of the country's balance of payments , when the expenditure side significantly exceeds the revenue side, that is, a negative balance is formed. The budget deficit is an unfavorable situation, the occurrence of which the state is trying to avoid in every possible way.
However, the methods of balancing the balance can also adversely affect the country's economy. For example, with a groundless increase in emissions, an increase in the inflation rate becomes inevitable , which subsequently can lead to the depreciation of the national currency, and therefore to an economic crisis. And central bank lending for the deficit leads to an increase in government debt, which it cannot repay.
In order to understand how to restore the balance of payments and eliminate the budget deficit, it is necessary to determine the main reasons for its occurrence. Often a negative balance is the result of misallocation of funds during the reporting period. Basically, the government allocates large sums for the development of the economy, for the implementation of serious programs of a social or national nature, for the development of measures to protect in the event of adverse situations in the form of earthquakes, wars and other things. One of the reasons is the implementation of poor-quality financial policy, reduction of the tax base, development of the shadow business. In recent years, the budget deficit has arisen due to the development of the crisis situation, the presence of large state debts to other countries.
When compiling a planned balance sheet for the coming period, the maximum value of the negative balance that can be formed under the influence of the circumstances of the current year is determined. Of course, these data are far from always consistent with the actual data, however, the government is taking various measures to prevent adverse consequences.
Budget deficit and methods of financing it
As noted above, unsecured emissions and lending help balance the balance of payments. However, these methods are not considered effective, since in the next reporting period the negative balance may increase even more. The taxation sphere is recognized as a good regulatory tool. By changing tax rates for certain groups of the population, contributions to the country's treasury can be significantly increased. I would like to note that this tool is effective only with the introduction of short-term changes, since in the future a natural reaction to this state of affairs will be the development of the shadow market or a significant reduction in the production activity of individual industries.
Often, the budget deficit is reduced by a procedure such as sequestration. It involves a consistent decrease in expenditure in proportion to the revenue side. Some articles are not subject to sequestration, in particular, debt on foreign economic activity, as this will be perceived as default. It is not recommended to apply this procedure in the social sphere, because this can cause an increase in social tension.
The method of issuing government securities has become widespread, thanks to which the government borrows their temporarily available funds from the population. Internal borrowing is quite popular, as investors trust more reliable state valuable documents than risky private entrepreneurs. In some cases, the government decides to sell part of the precious metals or even individual land plots.