...Budget Deficits, National Saving, and Interest Rates William G. Gale and Peter R. Orszag September 2004 Brookings Institution and Tax Policy Center. This paper was prepared for the Brookings Panel on Economic Activity, September 9-10, 2004. We thank Emil Apostolov, Matt Hall, Brennan Kelly, and Melody Keung for outstanding research assistance; Alan Auerbach, William Brainard, Robert Cumby, Bill Dickens, Doug Elmendorf, Eric Engen, Laurence Kotlikoff, Thomas Laubach, Maria Perozek, George Perry, Frank Russek, Matthew Shapiro, and David Wilcox for helpful discussions; and Eric Engen, Jane Gravelle, and Thomas Laubach for sharing data. ABSTRACT This paper provides new evidence that sustained budget deficits reduce national saving and raise interest rates by economically and statistically significant quantities. Using a series of econometric specifications that nest Ricardian and non-Ricardian models, we obtain evidence of strong non-Ricardian behavior in aggregate consumption. Consistent with several recent studies, we find that projected future deficits affect longterm interest rates, but current deficits do not. Our estimates suggest that each percent-ofGDP in current deficits reduces national saving by 0.5 to 0.8 percent of GDP. Each percent-of-GDP in projected future unified deficits raises forward long-term interest rates by 25 to 35 basis points, and each percent-of-GDP in projected future primary deficits raises interest rates by 40 to 70 basis points...
Words: 31953 - Pages: 128
...When national revenues total equals to or exceed total expense in a fiscal year denotes a balanced budget. Emphasis needs mentioning that a balanced budget refers to either a situation where there is neither a budget deficit nor a budget surplus. Put simply, revenues equal expenses or exceed costs, but not where expenses exceed revenues. Proponents of a balanced national budget uphold it will condense interest rates, increase savings and investments and further economic growth with favorable balance of trade deficits. Rather, Keynesian arguments against a balanced national budget appeal to the reasoning given that public sector operations usually have multiple and conflicting objectives with no standard measure of the returns of innumerable programs (Mikesell, 2014). However, adherence to a rigid balanced national budget might jeopardize the most potent of means to an efficient economy, opening risks of slower growth, increased unemployment, poverty, and inequality. Further, a balanced budget might limit government's ability to use countercyclical fiscal policy forcing spending cuts when a stimulus is most needed. Recessions would be longer and more severe, and long-term growth prospects worsen. A balanced national budget would be a national security disaster, as wars and other national security initiatives cost money, and a balanced budget will result in significant tax increases in case of emergencies. Most economists agree that the federal government needs to spend more...
Words: 598 - Pages: 3
...Work through the National Budget Simulation (http://www.econedlink.org/national-budget-simulator.php) in an effort to achieve a budget deficit of $1100B dollars. Scenario: The President of the United States has been elected on the promise of fiscal responsibility. By law he cannot reduce the net interest paid on the debt. The President's budget is projected to leave the country with a $1100B deficit. The United States is subject to global security concerns. At the same time, a lingering recession and financial markets rescue package reduces the government's tax revenues and forces the government to increase its spending on unemployment benefits, welfare, housing assistance, food stamps, and other need-based programs. Because of the increased spending and reduced revenues, the nation falls into a projected deficit of nearly XXX in 2015 (This is the first piece of the information you need to find). The President is committed to keeping his campaign promises in order to avoid future crisis over the US's financial standing. He must raise taxes, cut spending, or a combination of both to stay within his new guideline of a deficit below $1100B. The President turns to you, his trusted economic advisor, for help. (Note: While some events in this scenario reflect actual events, others are hypothetical for the purposes of this exercise. Budget figures in the simulation are actual White House figures of 2012, including spending and revenues of 2012.) Since the simulation is using...
Words: 303 - Pages: 2
...1. How will the program cuts that you made affect specific groups (the elderly, students, environmentalists, savers, the poor, foreign aid recipients, producers, etc.)? What programs did you choose to cut? Why did you choose those programs over others? Answer: The program will cut based on the requirement of the national budget that will affect to the specific groups such as students, the elderly, environmentalists, savers, the poor, foreign aid recipients, producers, etc. It can’t reduce the net interest paid to the debt. 2. Would other cuts have had less impact on people’s lives? Which budget cuts had the largest impact on reducing the deficit? Answer: I don’t think won’t hurt the people, because the poor people have been suffering a lot and rich people are still getting rich. Veteran’s benefits and services, Administration of justice, social security will have less impact on the people’s lives. Veteran’s benefits and services will cut the largest impact on reducing the deficit. 3. Which decisions might be perceived as politically motivated? Answer: Not to raise the taxes, not increase in transportation, energy and education will be perceived as politically motivated. No other decision of spending cut will help like these. 4. What are the tradeoffs of preserving some programs while protecting others? Answer: The programs that don’t affect the human life literally such as income tax, energy bill etc. need not be cut but some other can be cut in case of...
Words: 328 - Pages: 2
...Business Administration Department of Arts Management Importance of tax revenues in Czech national budget Nikola Jankovičová Prague, 2014 NATIONAL BUDGET OF THE CZECH REPUBLIC National budget ensures proper functioning of the country and contains revenues and expenditures which are further divided. Revenue consists of taxes, social insurance, charges and non-tax revenues. The highest amounts of the national budget provide pension, social and health insurance, education and interest on the national debt. The Ministry of Finance creates the national budget annually. It is submitted to the government which approves it and sends it to further approval by the Parliament. Members discuss it in three readings - basic information such as total revenues, total expenses, balance and method of settlement are approved in the first reading. After approval of these parameters, it cannot be changed. Members have a right to suggest their own overtures in the second reading. Only technical changes and the entire state budget proposal are discussed in the third reading. This should be done three months before the end of the year. If the national budget is not approved by the deputies until the end of the calendar year, the country is in the following year in the budget provisional arrangement and governed as the previous year. Expenses are provided for every part of the state budget each month. The biggest expenses are the mandatory ones that must be paid because it is...
Words: 1543 - Pages: 7
...INTRODUCTION: The budget preparation phase starts with the Development Budget Coordination Committee (DBCC). It is headed by the DBM Secretary and its members are the Secretary of Finance, the NEDA Director-General, and the Bangko Sentral Governor, with the Office of the President for general oversight. The NEDA provides the over-all macro-economic assumptions with which budgetary levels are to be determined. They involve the projected Gross National Product (GNP) real growth rates, inflation rates, 91-day treasury bill rates, the London Interbank Offered Rates (LIBOR) rates, foreign exchange rates, population growth, and other economic parameters. The Department of Finance (DOF), the Bureau of the Treasury, the Bureau of Internal Revenue and the Bureau of Customs help the DBCC in determining the sources of financing. They project the revenues that will be generated for the budget year as well as the borrowings that may have to be tapped. The DBCC determines the overall economic targets, expenditure levels, the revenue projection, deficit levels and the financing plan. It submits them to the President and the Cabinet for approval. Once these are approved, the DBM issues the Budget Call. This requires agencies to prepare their budgets in accordance with the said guidelines, macro-economic assumptions, and ceilings. The DBM spells out guidelines, procedures, and timetables. Agencies undertake their own internal consultations. They rank programs, projects and activities using...
Words: 2514 - Pages: 11
...International presence. This position is a National Level assignment reporting to the CMO. As Head - Oncology Sales, you will be responsible developing and implementing a national strategy for achieving the annual oncology sales objectives of the company. You will monitor and control the sales budget to ensure optimum utilisation of resources in the region. You would network regularly with Oncologists and provide timely and updated information about services offered. You will, with your Team, forge appropriate partnerships with key players in the Healthcare Industry to promote the achievement of Company's objectives. Part of your role will also include monitoring activities of your Competitive Set and collating data on new products, services, financials and performance in the region. You will provide adequate training to your Team and ensure that they are up to date on developments JOB ANALYSIS To work as Head - Oncology Sales with this Leading Chain of Diagnostic Clinics with a Pan India and International presence Job Description Title Head- Oncology Sales (National Level Assignment) Education MBA (Marketting) or equivalent PG Degree. Reporting To CMO Knowledge Industry, Competitor, Maeket (Oncology) Reported By 4 sales heads Skills Networking, Leadership, teamability, development, innovation Job Role And Responsibility 1 Developing and implementing a national strategy for achieving the annual oncology...
Words: 368 - Pages: 2
...Davis group Planning a Budget * Davis Service Group PLC employ around 17,000 people. * Its shares are quoted on the London Stock Exchange. * It mainly cleans and maintains things like industrial textiles, such as protective clothing. * They do this for four sectors work wear, healthcare, hotels and restaurants and general facilities. * They are a national company but only in Europe. * Careful budgeting has helped Davis to continue to be a profitable company even through the recession. Building a Budget * Some variables in a business that can be budgeted include: * Sales * Output * Costs * Operating and fixed * Profits * Cash flow * Capital investment. * A business’ budget for the year is based on assumptions of what will happen in the year ahead. * The budget is flexible to a certain extent and can be changed if for example, the manager sees that sales are significantly lower/higher than what was expected. * Zero budgeting is used by some managers and it means that they start every year at zero and then justify each expenditure rather than having a proper budget. * Budgets are most likely yearly but can be longer or shorter. * Davis’ budget runs from January through to December. * Davis Service Group is careful to set budgets in consultation and not to impose them on the different parts of the business. Making Assumptions * A budget needs to make assumptions about how internal and external...
Words: 644 - Pages: 3
...activities. 2. Budgeting compels managers to think ahead by formalizing their responsibilities for planning. 3. Budgeting aids managers in communicating objectives and coordinating actions across the organisation. 4. Budgeting provides benchmark to evaluate subsequent performance. The advantages of budgeting described previously are limited, in some cases severely, by problems associated with budgets. In this section, three problems that complicate the implantation of budgets: 1. Low levels of participation in the budget process and lack of acceptance of responsibility for the final budget. 2. Incentives to lie and cheat in the budget process. 3. Difficulties in obtaining accurate sales forecasts. What external factors need to be considered? External influences that are not in your control may have an impact on the success of your efforts. Having alternate plans or rethinking your strategies should be a part of your planning. Some external influences that can affect your financial planning include (examples in parenthesis): Government or national policies and legislations (the Poverty Reduction Strategy that may affect the way governments address poverty) Natural disasters or epidemics (drought that affects the people you are working with) Political conditions (elections that may disrupt daily life or cause instability) Global economic forces (changes in global market prices for the commodity that farmers are producing) Local...
Words: 288 - Pages: 2
...Process of Budget Policy Shiram Sam Economics of Public policy (ECN4010) ANC/EDP 2014 DEFINING THE NATIONAL BUDGET The budget is the most important economic policy tool of the national government. Far from being a mere compilation of income and expenditure, it is the blueprint for a nation's socio economic policies for each fiscal year. The national budget is thus the fundamental indicator of what government proposes to do and what objectives it pursues. It presents the government's financial plans for an upcoming period and is a comprehensive statement of the priorities of the nation. Which sectors of the economy will be expected to pay for said activities; how government will respond to economic disturbances in the short term; and who will be the direct and indirect beneficiaries of public services? The budget is about people and should respond to their needs. It is a way of determining how the Government seeks to fulfill goals for the welfare of people as set out in a country's Constitution/Bill of Rights, in international instruments and standards (e.g. MDGs), and in government policy statements. THE FUNCTIONS OF THE BUDGET The National Budget allocates resources, distributes wealth and income, and stabilizes the economy. The economic stabilisation function of the budget should be balanced against the need to ensure that there are adequate resources (including from external sources) to guarantee the delivery and development of essential services especially...
Words: 1927 - Pages: 8
... There was lack of accountability, while decision making was highly centralized. To address these problems, the PPBS was improved and introduced as the Modified Budgeting System (MBS) in 1990. The system expounded the concept of “let managers manage” and held them accountable for their performance. However, even under this system, the emphasis was still on output, with each ministry and agency focusing on delivering its programmes and projects. This gave rise to duplication of efforts and resources across ministries. It soon became apparent that there were weak linkages between policy formulation, budgeting process as well as project implementation and evaluation. There was also little or no integration between operating and development budget. More importantly, the system could not meet...
Words: 3861 - Pages: 16
...Research Vol.2. No.3, pp. 69-83, May 2014 Published by European Centre for Research Training and Development UK (www.ea-journals.org) A CRITIQUE ON CASH BASIS OF ACCOUNTING AND BUDGET IMPLEMENTATION IN NIGERIA Emmanuel Amaps Loveday Ibanichuka (Fca, Ph.D) Department of Accounting,Faculty of Management Science,University of Port-Harcourt, Port-Harcourt Oyadonghan Kereotu James (Aca) (Corresponding Author) Lecturer, Department of Accounting and Finance Niger Delta University, Wilberforce Island, P.M .B 071, Yenagoa, Bayelsa State, Nigeria ABSTRACT: In public sector accounting, government ministries and parastatals operate a cash basis of accounting which is believed to be simple in operation and understanding by staff that may not simply have a rigorous training in accounting. A great disadvantage is that it does not recognise assets, debtors and liabilities. This principle negligence is capable of introducing negligence into proper record keeping of how much value of infrastructural assets are being developed in the pass fiscal years, their state of activity and possibly resulting to a repetition of projects, poor monitoring of budget implementation and misappropriation of fund. The authors took a frank analysis of the implications as they relate to the consistent problem of poor budget implementation in Nigeria. This study was based on empirical analysis of one hundred and thirty (130) questionnaires distributed to 130 public servants in the civil service of...
Words: 7938 - Pages: 32
...the Annual Financial Statements starting from 1st June and within six months (31st December) the governments have to produce the documents and submit to the Royal Audit Authority to get audited and certified before submission to the government. And within three months after the completion of the consolidated annual financial statements, The Auditor General will give an audit opinion on the Annual Financial Statements of the Government. For the completion of the information for the MoF the information shall be collected from various source like: Bank of Bhutan (BoB), Department of Revenue and Customs, Department of National Budget, Gross National Happiness Commission, National Statistical Bureau and Other Agencies. More over the AFS shall also include the following statements and schedules: 1. Budget vs. Actual and Financing: This statement presents approved budget and estimated resource for the fiscal year. 2....
Words: 610 - Pages: 3
...The Operating Budget Dr. Marion Lee PAD 505- Public Budgeting and Finance May 4, 2014 Abstract This paper will give the Operating Budget for the City Of New Orleans. It will provide the agencies mission, goals, objectives, departments and strategic plan. It will describe the budget of the agency by addressing the Financial Summary, including revenue expenditures, department budgets, funding, capital projects and debt administration. This paper will also perform a Cost Analysis which will include fixed cost, step-fixed cost, and variable cost. It will identify one to two challenges a Budget Analyst will have in managing the budget. This paper will recommend two to three strategies the agency should review regarding new initiatives and budget cuts over the next five years. Introduction With roots spanning all the way back to the 1700’s, The City of New Orleans is the Largest Metropolitan city in the State of Louisiana. It is a port city, which had a population of 343, 829 as of the 2010 U.S. Census (Bureau, 2012). The mission, goals and objectives of the city are to have more public safety, more job creation, more recreation for the youth, and to reduce blight in the city. New Orleans is still in a transition stage. Even though it has been 9 years after Hurricane Katrina, one of America’s Deadliest Hurricanes, the city is still rebuilding, still restructuring and actually still growing. Hurricane Katrina affected the city’s economic wellbeing. The city has several...
Words: 1042 - Pages: 5
...Irene Rubin at the outset argue that "public budgets are not merely technical managerial documents; they are also intrinsically and irreducibly political"? Do you agree or disagree based on your reading of the case "County Prison Overtime" Irene Rubin’ view that public budgets are not merely technical managerial documents and that they are also intrinsically and irreducibly political is because public budgets reflect the choice of government. As a general rule of thumb, government chooses to go along with programs that fit their own political agenda. Programs should reflect a general consensus about what kind or type of services that government should provide to the people. She argued that budgets should reflect priorities. Should government spend money on national defense or on public welfare? or should government spend money on the criminal justice system rather than nuclear power? She also believes that budgets should reflect broader public goals, meaning that legislators ought to listen their constituency and approve more spending to satisfy their needs. She further stated that government should be accountable. People always want to know if government is following their preferences and keep its promises. They also want to know that there isn’t any waste and want to see solid outcome. Irene also thinks that budgets should ensure that taxation is done fairly to redistribute wealth either upward or downward. She stated that budgets should influence the economy, so that fiscal...
Words: 1427 - Pages: 6
