Government Debt and Deficits

1. _____, government debt can be thought of as future spending brought forth into present time. Governments incur a debt when their spending desires exceed their receipts from taxes and other income sources, and that debt is ultimately repaid through a levy of taxes in excess of current spending.

2. ______ can become problematic through both a crowding-out effect and through the deadweight loss of future taxation. When governments access debt markets, they effectively crowd out other would-be borrowers (like corporations) and force them to pay higher interest rates to attract willing creditors. With the higher cost of capital that results, corporations abandon or reject expansion plans that would otherwise have a positive expected economic return.

3. ______ virtually no means of repaying debt other than through future taxation. While there is a multiplier effect to government spending, high levels of government debt essentially saddle future generations with the deadweight loss of higher taxation with no offsetting multiplier to the GDP from government spending (as that spending occurred years early when the debt was issued)…

4. _______, it gives its creditors government securities stating the terms of the loan: the principal being borrowed, the interest rate to be paid on the principal, and the schedule for making the interest payments and principal repayment. The amount of outstanding securities equals the amount of debt that has not yet been repaid; that amount is called “the government debt.”

5. _______ several types of debt, which can be classified in various ways. One classification is by the type of government that issued the debt. In the United States, the main divisions are federal, state, and local debt; local debt can be divided further by type of locality, such as county or city (see bonds). A second classification of government debt is by maturity at the time of issue. When we talk about a ten-year bond or a thirty-year bond, we are talking about the length of time between the date when the bond was first issued and the date on which the principal will be repaid.

6. ________ is divided into three convenient maturity categories. Treasury bills have initial maturities of one year or less (“three-month bills,” “year bills,” etc.); treasury notes have initial maturities between one and ten years; and treasury bonds have initial maturities longer than ten years.

7. _____ generally are just called bonds, irrespective of the initial maturity. A perpetuity is a bond with an infinite maturity, which means the principal is never repaid and interest payments are made forever. The British government once issued perpetuities, calling them “consols.” A third way of classifying government securities is by the source of the revenue to repay them.

8. ______ will be repaid with revenue collected by taxing the public; “revenue bonds” will be repaid with revenue collected from specific user fees, such as bridge or highway tolls. This way of classifying debt is used only for state and local debt.

 

Work in groups. Roleplay a scientific conference where experts in Taxation, Government Spending and Government Debt are meeting. You organize this event. Make up the prime theme of the conference and make up 5 reports on the theme.

11. Prepare a report in the form of a presentation on one of the following topics:

1. Positive and negative Externalities.

2. Difference between marginal and average tax rates.

3. Implications of Taxation and Government Spending.

4. Debt and Deficits.

5. How Tax Cuts Stimulate the Economy.

Writing

Fill in the table. Search the Internet for explanations and examples in the main fronts of Government taxes and debt. Be ready to comment upon the found information.

	Government Taxation	Government Spending	Government Debt	Government Deficits
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1. В рыночной экономике существуют понятие «частные и общественные блага».

2. Проблема фрирайдеров, означает, что неплательщики все равно могут пользоваться товарами и услугами.

3. Вмешательство государства в экономику связано с внешними факторами, которые могут быть как положительными, так и отрицательными.

4. Используя свою систему налогообложения и субсидии, государство справляется с внешними факторами.

5. С целью уменьшения или устранения нанесенного ущерба государство облагает компанию налогом.

6. Чтобы стимулировать рост используются государственные субсидии.

7. Средняя налоговая ставка – это сумма общих уплаченных налогов, разделенная на общий облагаемый налогом доход.

8. Государственный долг - это будущие расходы, произведенные в настоящее время.

9. Проблемы государственного долга состоит в возможности эффекта «вытеснения», а также в чистых издержках от будущих налоговых ставок.

10. Правительства практически не могут выплатить государственный долг кроме как с помощью (other than through) будущего налогообложения.

11. В Соединенных Штатах основными видами госдолга являются федеральный, государственный и муниципальный долги.

12. Федеральный долг подразделяется на три категории, удобные для погашения.