The politics of deficits, surpluses, borrowing and debt Essay - 1

The politics of deficits, prodigalityes, sweep uping and debt - Essay ExampleA diverse empirical literature is provided by explore based on industry level-data Rajan and Zingales 1998 Wurgler 2000, time-series research Neusser and Kugler 1998 Rousseau and Wachtel 1998, 2000, and econometric investigations that use panel techniques Beck, Levine, and Loayza, 2000 supports the view that financial systems are essential for economic growth. While a strong relationship exists how sound and well-functioning financial markets furbish up economic growth, Beck et al raise a critical question How did some countries develop well-functioning financial systems, while others did not? Why do some countries occupy particular laws and enforcement mechanisms that support the operation of free, competitive financial markets, while others do not? (2001, p.2). Particularly, why do some countries post huge budget surplus amounts while other states suffer prolonged effects of massive budget deficits?Ac cording to Petersen (1999), governments face the fundamental issue of using credit and raising monetary resource in the present that will be repaid in the future with interest, a cost just like any other economic choice. Governments usually borrow in order to finance deficits (easier than to raise taxes), stabilize the economy in the short term and invest in productive infrastructure and economy upskilling in the long-term. Foreign borrowing allows a country to invest and consume beyond the limits of current domestic production and, in effect, finance capital formation not only by mobilizing domestic savings but also by tapping savings from capital surplus countries (Narayanan 2002). Petersen notes that issue governments face more options in this look at because it has control over the money supply as well as the operation of the banking system and credit markets than its local counterparts but argues that the more open that national economies have developed, the more even those options are curbed by the workings of the international economy