Budget deficit is considered a common occurrence with today’s modern times because most governments could not sustain on the corresponding level of revenues to which is needed to give support the budgetary requirements. The budgetary requirements are then brought and dictated with the rising needs and expectations of a country, people and government, which has the responsibility in meeting and servicing them.
With today’s good economic times which is at the stage of business cycle from expansion to peak, a government revenue is at its highest when the private business sector is not capable of paying more taxes from a good business that’s brought about by favorable economic environment. This however is axiomatic because during good times, the government has the tendency to correspond appropriate more expenses with its budget and during at times of increasing its budgetary appropriations in a level that’s more than the increase on its revenues. This is why a budgetary deficit will still occur.
In order to recapitulate, a recession or perhaps a contraction of the economy which is reflected in a budget deficit is not solved by the capping of governmental expenses or by the imposition of more taxes of the taxpayers in raising more revenues. The result on both instances is just prolonging the economic stagnation because there’s no catalysts to rev-up the economy because both of the private and government sectors are holding back with the investments in the government’s case because it’s cutting back on expenses. On the private sector’s side, it has been burdened with more taxes.
The government at times of fiscal deficits and when the economy is not in a good mood, embark with an expansionary monetary program that’s designed to rev-up, shore-up and also propel economic activities, which helps to extricate the economy from the current economic contraction. This kind of expansionist monetary policy consist of the government on increasing the level of money supply in circulation up to a point which is going to enable it to expand its economic activities through investments on income generating ventures, projects and programs.
This in fact can be accomplished with government borrowing against future taxes by selling long-term bonds and securities to the central bank of which shall issue the corresponding new local money. The new local money to which had been created is then going to be used in financing development projects such as construction and establishment of infrastructure and utilize which is all over the country that then catalyzes the expansion and growth and also in creating more favorable business and economic climate for private businesses to thrive in. With this kind of government assistance and more business opportunities, the private sector will then be able to grow and expand, make more profits, paying more taxes to the government and to employ more people.