What Is an Accumulated Deficit?
Deficit finance, also known as fiscal deficit, refers to the part of an administrative region where the annual fiscal expenditure is larger than the fiscal budget. It is a means for the government to consciously and systematically use the budget deficit to achieve stable economic growth.
Deficit finance
- Deficit finances. From 1929 to 1933, it happened
- The government issued
Positive effects of deficit finance
- Deficit finance
- Since 1998, in order to effectively resist the impact of the Asian financial crisis on China and curb the economic downturn, China has implemented a proactive fiscal policy focusing on expanding national debt investment. Active fiscal policy is mainly implemented in two ways: one is to increase government spending, and the other is to reduce taxes. When tax reduction is not feasible, the government has adopted a deficit policy to increase government investment by issuing government bonds and stimulate social demand. In August 1998, China issued 100 billion yuan of long-term national bonds for the first time, and 110 billion yuan was issued in 1999. From 2000 to 2002, the annual increase of national bonds was 150 billion yuan, and in 2003 it was 140 billion yuan. As of 2002, the total investment scale of China's national debt projects with long-term construction of national debt funds has reached 660 billion yuan. These treasury bonds are mainly used in agriculture, forestry and water conservancy, transportation and communications, environmental protection, urban and rural power grid transformation, grain warehouses, urban utilities, and the development of the western region. The issuance of treasury bonds has stimulated investment from local, departmental and enterprise supporting funds and bank loans. Through the construction of treasury bonds projects, many important events related to the overall situation of economic and social development and long-term development have been created, which are not limited to financial resources. They have played an important role in maintaining moderate and rapid growth of the national economy. According to statistics, the addition of national debt since 1998 has driven economic growth of 1.38, 1.44, 1.81, 1.66, and 1.8 percentage points, respectively, leading to an investment of 3.2 trillion yuan and a total of 7.5 million job creations. With the current weak economic growth in the world, China's economy can maintain a steady growth trend, and the fiscal policy of the expansion deficit is indispensable. From this perspective, the fiscal deficit is a means of national macro-control. It can effectively mobilize social resources, accumulate huge social capital, support economic system reform, and promote sustained economic growth. In fact, the fiscal deficit is the country's goal of economic development and social stability, and it depends on the country's solid and stable national credit to adjust and intervene in the economy, which is a manifestation of the country's role in economic regulation. [5]
Negative fiscal deficit
- 1. Deficit fiscal policy is not a cure-all for all diseases. To stimulate investment is to expand production capacity. The implementation of expansionary policies may be to temporarily reduce the current overproduction by further deepening future overproduction. Therefore, the consequences of long-term expansion will inevitably lead to a more violent economic crisis. The author believes that the Chinese economy has entered an overheated state, and its manifestation is overheated investment. There are 86 subway lines in the country under construction or planned; the annual production capacity of mobile phones in the country is about 130 million units (about 35% of the world's total demand), and the production capacity is expected to double in three years; the production capacity of Chinese cars is expected to double in three years; Chemical fiber production capacity nearly doubled after three years. In addition, there are a large number of projects under construction such as steel, cement, and ports. With more than 20 years of reform and opening up, the degree of marketization of the Chinese economy has greatly increased, and resource allocation has become more reasonable. However, there are still many problems in the capital market. It is mainly manifested in three aspects: one is government intervention; the other is the non-opening of capital projects, which leads to the lack of a way for excess funds in the country and cannot go overseas. Finally, capital is invested in places that should not be invested. It plays an important role in China's economic development, but in some places foreign capital has flooded and sometimes even caused disasters. [6-7]
- 2. The fiscal deficit may increase the government debt burden and trigger a fiscal crisis. Fiscal risk refers to the possibility that finances cannot provide enough financial resources to cause serious damage to the operation of the state machine. When this possibility turns into reality, the lighter will lead to financial inadequacy and the more serious will cause the financial crisis and the loss of government credit. There is a reasonable limit of the fiscal deficit with objective nature. If the deficit is too large, it will trigger a national credit crisis. For the evaluation of the risk of fiscal deficits, four indicators are generally used internationally: first, the fiscal deficit rate, that is, the proportion of deficits in GDP, generally taking no more than 3% as a warning line; second, the debt burden rate, that is, the balance of national debts in GDP Generally, the warning line is no more than 60%; the third is the financial debt dependency, that is, the current national debt issuance / (the current fiscal expenditure + the current national debt repayment and interest payment), generally no more than 30% as the warning line Fourth, the national debt repayment rate, that is, the current national debt repayment and interest / current fiscal expenditure, generally not exceeding 10% as a warning line. In China, the possibility of an outbreak of a financial crisis is unlikely, but with the expansion of national debt, the central government's debt dependency has been quite high. The fiscal deficit rate in 2002 was 3.004%, reaching the internationally recognized warning line of 3%, and financial debt. Dependency is 36.32%, which exceeds the upper limit of the international warning line by 6.32 percentage points, and the national debt repayment ratio is 18.78%, which exceeds the upper limit of the international warning line by 8.78 percentage points. The pressure on government debt repayment increases, and the risk of financial operation increases. Once the burden exceeds a certain limit, it will inevitably trigger a financial crisis and cause financial risks. The current operation of national debt is entering a period of high debt with new debt and old debt. The proportion of constructive debt expenditure that can be used for the country has gradually decreased, and the economic efficiency of investment has been poor, which further weakens and reduces the government's ability to pay its debts in the future. . In addition, there are a large number of "hidden deficits" from central finance to local finance. Some hidden debts pose potential financial risks, mainly including local government construction loans, relevant state ministries and commissions that have not been included in the budget, and government sovereign foreign debt borrowed from the World Bank, Asian Development Bank, foreign government borrowers in the name of the Chinese government, and state-owned enterprises and state-owned banks. Institutional shortfalls, food loss postings, and social security payment gaps. According to World Bank estimates, China s hidden debt accounted for 50% to 70% of GDP in 2002. Although these are not included in government debt, the government must bear this part of the debt, which may cause a payment gap, which may result in Fiscal pressures and risks.
- 3. Deficit fiscal policy breeds the seeds of inflation and may induce inflation. To some extent, deficit finance has a fixed relationship with the inflationary rise in price levels. The reason is not difficult to find. In a society, fiscal deficits lead to an increase in the total demand for money, while the existing supply of goods and services does not increase in the same proportion. This will inevitably create an inflation gap in the economy and raise prices. In the case that the fiscal deficit does not cause an increase in the money supply, the deficit is directly related to demand-driven inflation. As we all know, demand-driven inflation is caused by the increase in aggregate demand. In an open economy, aggregate demand consists of consumption, investment, government expenditure, and exports. Changes in any of these four factors will affect changes in aggregate demand. If the deficit continues to increase and aggregate demand rises, so that aggregate demand exceeds the level of output that can be achieved with full employment, inflation will occur. Three inflations since the founding of the People's Republic of China, namely the first inflation in the early days of the founding of the People's Republic of China, the second inflation in the early 1960s, and the third inflation in the 1980s. Although these three inflations occurred under different historical conditions , But its occurrence is closely linked to a large fiscal deficit. China's economy has overheated, and an important manifestation is the emergence of "bottles of means of production" and rising prices. Since last year, with the increase in investment, the prices of steel, cement, coal and chemical products in China have started to rise, and power shortages have gradually occurred in some regions. If the booming investment situation continues, the problem of "bottlenecks of means of production" will further worsen, leading to a continuous rise in the prices of means of production, which will eventually be reflected in consumer product prices, leading to inflation. In addition, the growth of China's exports is also accelerating. There is an expectation of "renminbi appreciation" in the world. The increase in foreign exchange flows has led to an increase in the injection of base currencies. At this time, if the investment continues to grow at a high rate, the speed of currency circulation will increase and it will be easier Inflation.