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The Impact Of The Deficit On The Government Budget Debt For The Period 2009 To 2021

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  • Florencia, Elizabeth

Abstract

The research on the relationship between deficit and government debt aims to analyze the effect of the budget deficit and government debt on economic growth. It shows that the government budget deficit causes a slowdown in economic growth through a decrease in the allocation of output available for private capital accumulation and an increase in interest rates which causes crowding-out of private investment. The deficit caused by an increase in the component of unproductive spending and a distorting source of state revenue contributed to a slowdown in economic growth. The results also show that the increase in foreign debt does not lead to economic growth. Although there is additional private capital through an increase in the accumulation of private external debt which drives the growth of national output, the flow of national capital out to pay interest on the accumulated private external debt causes a decrease in national income. The domestic financial market has not been able to direct private external debt to productive activities for economic growth, where most of the additional private external debt is used for operational activities and not for private investment activities. The conclusion of this study explains that the effect of the accumulation of private foreign debt is not significant to economic growth.

Suggested Citation

  • Florencia, Elizabeth, 2022. "The Impact Of The Deficit On The Government Budget Debt For The Period 2009 To 2021," OSF Preprints sekvz, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:sekvz
    DOI: 10.31219/osf.io/sekvz
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