EC140 Lecture Notes - Lecture 18: Deficit Spending, Potential Output, Government Spending
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EC140 Full Course Notes
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Government budget constraint: expenditures must be paid from net tax revenue or borrowing, expenditure include spending and interest on the debt. (cid:1830)=+ (cid:1830) (cid:1846: gover(cid:374)(cid:373)e(cid:374)ts do(cid:374)"t have dire(cid:272)t (cid:272)o(cid:374)trol over de(cid:271)t-service (cid:4666) (cid:1830)(cid:4667) (cid:1865)(cid:1853)(cid:1877) (cid:1854)(cid:1873)(cid:1856)(cid:1859)(cid:1857)(cid:1872) (cid:1856)(cid:1857)(cid:1858)(cid:1855)(cid:1872)= (cid:1846, primary budget deficit ignore. Federal government deficits: the budget deficit is thus: Canadian debt and deficits: federal debt is roughly 30% of gdp, provincial governments in canada also carry significant debt, debt varies across provinces, but is getting close to federal debt levels, provincial debts likely to continue to rise. Deficits and fiscal policy: not all changes in deficits are policy decisions, higher national income implies, higher tax revenue, lower transfer payments, government spending and debt-service can be viewed as autonomous. Cyclically adjusted deficit: taxes and transfers change with income, calculate a hypothetical deficit based on potential gdp, y, often called a structural deficit. If r g, pri(cid:373)ary surplus/defi(cid:272)it is all that (cid:373)atters.
