Good fiscal policy has proved to be an effective method to counter severe economic recessions and surging unemployment rates (Battaglini and Coate 303). The two most popular strategies that the governments apply when faced with crises include increasing government spending and lowering tax rates. Generally, it is believed that the former is more suitable for the short-term improvements while the latter – for the long term recovery. Both fiscal policy tools are used to stimulate demand and, thus, lead to economic and employment rate growth.
Public debt is the amount of money that governments borrow from private individuals and public entities. As for June 2021, the U.S. budget deficit was equal to roughly 174.2 billion U.S. dollars, and the overall national debt accounted for approximately 28.5 trillion U.S. dollars (MarketAxess Corporate BondTicker 28). That makes the country to be in the list of 20 states with the highest government debts as a ratio to GDP, which equals 115.84 percent (O’Neill). In this regard, Tangkanjanapas et al. found that the proportion mentioned above exceeds 77 percent, then each additional percent would reduce the real economic growth by 0.017 percent (5). Therefore, the U.S. government should seek methods that would help to reduce the budget deficit.
Generally, the public deficit can be cured by a number of fiscal and monetary approaches. They include raising taxes, reducing government expenditures and transfers, buying back debt bonds, affecting interest rates, and so on (Röhrs et al. 13). Besides, in extreme cases, when it is believed that the government is unable to reduce or repay its national debt, the state can announce default (D’Erasmo et al. 2494).
Works Cited
Battaglini, Marco, and Stephen Coate. “A political economy theory of fiscal policy and unemployment.” Journal of the European Economic Association, vol. 14, no. 2, 2016, pp. 303-337.
D’Erasmo, Pablo, Enrique G. Mendoza, and Jing Zhang. “What is a sustainable public debt?.” Handbook of Macroeconomics, vol. 2, 2016, pp. 2493-2597.
MarketAxess Corporate BondTicker. “Market Laboratory”. Barron’s, 2021.
O’Neill, Aaron. “The 20 countries with the highest public debt in 2020 in relation to the gross domestic product”. Statista, 2021.
Röhrs, Sigrid, and Christoph Winter. “Reducing government debt in the presence of inequality.” Journal of Economic Dynamics and Control, vol. 82, 2017, pp. 1-20.
Tangkanjanapas, Passarapa, Rewat Thamma-Apiroam, and Siwapong Dheera-aumpon. “Public debt and economic growth: the empirical result of Thailand.” RMUTT Global Business and Economics Review 15.2 (2020): 1-18, vol. 15, 2020, pp. 1-18.