Public Sector Finances Flashcards
Define Fiscal Deficit / Budget Deficit
When government spending is greater than government revenue in a particular year
Define National Debt
A government’s total outstanding debt-effectively what the government still owes from the budget deficits accumulated over time
Define Debt-to-GDP Ratio
Total government debt as a ratio of GDP. This is used to judge the likelihood of government debt being repaidd. In general, the higher the ratio the less likely repayment becomes
What happens to the national debt when a government has a fiscal deficit
Size of the national debt will get larger
What happens to the national debt when a government has a fiscal surplus
The size of the national debt will get smaller
What is Cyclical Budget/Fiscal Deficit
Part of a budget deficit that occurs due to automatic stabilisers
When does automatic stabilisers cause the cyclical budget deficit to fall
From recovery to the peak of a business cycle
When does automatic stabilisers cause the cyclical budget deficit to rise
From a peak to the trough of a business cycle
Define Structural Budget/Fiscal Deficit
Part of a budget deficit that occurs due to discretionary fiscal policy rather than automatic stabilisers
Factors Influencing the Size of the Deficit
State of the Economy
Age Distribution of the Population - Dependency Ratio
Discretionary Fiscal Policy
Debt Interest
Impact of Fiscal Deficits and National Debt
Interest Rates can rise
Debt servicing is dependent on interest rates
Intergenerational Equity worsens as the next generation has to pay for it
Rate of Inflation worsens
Credit Rating is likely to fall
FDI is likely to fall
Areas of government spending that are likely to boost long term economic growth
Infrastructure, Education and Health
Areas of government spending that are likely to have a negative or negligible impact on economic growth
War and Vanity project
Define Creditworthiness
A measure of how likely an individual, firm or government will repay, or default, on a debt
What is a credit rating
An assessment of the creditworthiness of the borrower such as a company or government
