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Government borrowing
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Government borrowing
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ES20013 intermediate macroGovernment borrowing
Government revenue and expenditure
- The government has expenditures and revenue
o It must also pay interest
- Expenditure covers purchases of goods and services – items such as public spending
on consumption and investment
- If the government has a debt of B, it must pay interest iB
- To finance this, the government raises taxes and borrows
- In some circumstances, the government can also finance expenditures by printing
money; we ignore this for now
- Denote real government expenditure as G and real taxation revenue as T
- Denote real government expenditure as a proportion of GDP as g = G/Y
- And denote real government tax revenue as a proportion of GDP as t = T/Y
- The primary deficit is
o
o
- the total deficit is the primary deficit plus interest payments
- if the deficit is D, the deficit as a proportion of GDP is d = D/Y and debt as a
proportion of GDP is b = B/Y then
o
o
, Total expenditure just over £1 trillion = G
Total taxation just under £1 trillion = T
Deficit is £99 billion = D
On Y axis proportion of GPD
Left shows different taxes and how much they raise
The right-hand side shows where government spending is going
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