Thank you for this discussion. I can think about one reason behind governments going for debts even with good economic conditions. In fact, you may notice that many developed and industrialized countries with important wealth and sovereign funds still have public debts even if they can pay this debt. One reason behind this is the fact that these countries need to be always present in the international financial market. Rating agencies base some of their grades on the ability of a country to service its debt in the due time, so, many countries prefer to have debt and show that they are able to service the debt easily without the need for severe fiscal adjustments. This is seen as a proof of good condition in the economy of these countries.

It's a problem of political economy. Political actors do not maximize the public good (if such a thing can even be defined) - like everyone else, they maximize their own utility. What maximizes a politician's utility depends on political institutions; in a democracy politicians cannot stray too far from what voters want, in a dictatorship they can do so with impunity. If political institutions are working well, then it will be in the interests of politicians to do something that is reasonably in the public interest as well, although it would be very hard to get political interest and public interest to align perfectly. When institutions are working poorly, politicians do what benefits them under those institutions and it may be very different from what would be best for the country as a whole.

In the context of this question - budget deficits are popular and budget surpluses are not, at least as long as voters are not concerned about the level of public debt. So when the economy is in recession it's easy to get politicians to vote for deficits, but when they economy is doing well it's hard to get politicians to vote for surpluses. So only half of the Keynesian stabilization program is politically feasible, unless debt levels get so high that they threaten other interests of voters.

Economists need to think more than they usually do about how political institutions make public decisions and what kind of policy recommendations can plausibly be implemented.

It would also be helpful if the public (at least the American public) had a better understanding of the connection between budget deficits and interest payments on the debt than they do. They would demand different decisions from politicians if they did. On the other hand, in the 1920s the reverse was true; politicians actually raised taxes and cut spending to keep the budget balanced at the start of the Great Depression (at least in the US) because of a mistaken, pre-Keynesian understanding among both the voters and the politicians that budget deficits always had bad consequences.

Ultimately better-educated voters, and political institutions that compel politicians to act in the interests of voters, are the solution.

На мой взгляд, если есть дефицит в бюджете бюджета, это означает, что правительство неэффективно регулирует экономику и повышает финансовые риски для людей.

In the context of the current economic crisis caused by the Coronavirus pandemic and the anti-crisis instruments of interventionist socio-economic, budgetary, fiscal, monetary policy, etc., questions arise about the change in the level of debt of the state's public finance system. If the public finance sector systemically, institutionally, financially etc. constitutes a significant part of the national economy, then there may be many strong correlations between the financial efficiency of running public finances, including the level of public finance system debt, the structure of the tax system, dominant types of taxes and other state budget revenues , implemented investments from state finance funds, socio-economic policy, etc. and the pace of economic growth and development. Due to the use of anti-crisis instruments of interventionist socio-economic, budgetary, fiscal, monetary, etc., in some countries the level of indebtedness of the state's public finance system increased significantly up to the levels of maximum prudential indicators, indicating the level of security of the state's financial system. In such a situation, if analogous crises appear in subsequent years, there may be a high risk of liquidity loss in the state's public finance system in some countries, e.g. in the situation of difficulties in rolling up previously issued state treasury bonds, when foreign investors' interest in purchasing this decreases. type of deposit instruments.

What is your opinion on this topic?

Please reply,

I invite you to discuss

Thank you so much for participating in the discussion,

Greetings,

Dariusz Prokopowicz

Dear Hassane Eddassi, Stephen Schmidt, Izolda Chiladze, Thank you very much for participating in this discussion. Thank you for the information provided. Best wishes, Have a nice day,

Dariusz Prokopowicz

Dear Dariusz, I will start from your original question on deficit.

In a situation where nominal growth is in the range of, say, 3% (could be 1% real and 2% just inflation), which for many economies could be judged as "normal", the state can run a deficit of 3% of GDP with a nil impact on the Public debt/GDP ratio.

Troubles start when the Debt/Gdp ratio is already high, as is the case in many countries now, and the average interest rate on existing debt is higher than the nominal growth rate (this condition alone renders the debt path explosive if no adjustment action is taken). Here we move towards the other item on which you launched the debate. As you might remember I had asked as well for peers opinions on the mid-to long-term developments in interest rates, after the current bonanza. The worry is the same, although my wording was different: will more fragile economies be hit by expectations of insolvency pushing national debt rates up more than in "core" economies?

For the time being, policies seem to contradict this worry. Of course, more fragile economies should try to curbe debt in the years to come. And no other similar shock should happen... two big ifs in a row.

Dear Andrea de Panizza, Thank you very much for participating in this discussion and for a substantive, constructive reply. A very good answer on this topic. I fully agree with your opinion on this matter. I am very glad that the discussion on this important topic is developing. Best wishes,

Have a nice day,

Dariusz Prokopowicz

The importance of efficient, effective, reliable debt management in line with the principles of corporate social responsibility and maintaining a safe, low level of indebtedness in various public and private sector entities, including the financial sector, and especially in investment banking, has been shown by the global financial crisis from 2008. I wrote more about this in my publications on this subject on the Research Gate portal and on my profile on the Research Gate discussion forum. I invite you to research cooperation.

What do you think about it?

What is your opinion on this topic?

Please answer me and invite you to the discussion,

Thank you very much and best regards,

Dariusz Prokopowicz

Dear Olumide Olaoye

Thank you very much and best regards, Have a nice day,

Dariusz Prokopowicz

Public debt is undoubtedly caused by excessive expenses, which may be caused by the militarization of the economy, extensive administration or high social transfers. Rarely the cause may be too low taxes and other public revenues, the reasons for which may be very numerous, from too low effective tax rates through ineffective tax collection system, to narrowing the tax base caused by the falling level of gross domestic product production... The main reason for the public deficit is the failure to adjust the size of public expenditure to the profitability of the economy. This maladjustment may have a permanent character caused by the tendency to excessive expansion of public expenditure. Maladjustment may also have short-term character related to the alternate nature of economic development, which is expressed in the business cycle. Among the other sources and causes of the public deficit may be distinguished low efficiency of public spending, low efficiency of public debt collection and the burden of budget expenditure on the costs of already existing public debt... Szybowski, D. (2018). CAUSES OF PUBLIC DEBT AND BUDGET DEFICIT. International Journal of New Economics and Social Sciences IJONESS, 8(2), 57-67.

More and more results of econometric modeling research are showing the relationship between the value of general government deficit and the costs of public debt service... Redo, M. (2016). Sustaining government budget deficits as a cause for the cost of public debt service increase in Western European countries in the 1995-2015 period. Toruńskie Studia Międzynarodowe, 1(9), 57-65.

Cutting government spending can increase the budget deficit at zero interest rates according to a standard New Keynesian model, calibrated with Bayesian methods. Similarly, increasing sales taxes can increase the budget deficit rather than reducing it. Both results suggest limitations of ‘austerity measures’. At zero interest rates, running budget deficits can be either expansionary or contractionary depending on how they interact with expectations about long‐run taxes and spending. The effect of fiscal policy action is thus highly dependent on the policy regime. A successful stimulus, therefore, needs to specify how the budget is managed not only in the short but also medium and long run... Denes, M., Eggertsson, G. B., & Gilbukh, S. (2013). Deficits, public debt dynamics and tax and spending multipliers. The Economic Journal, 123(566), F133-F163.

Dear D A Gayan Nayanajith,

Thank you for your reply, for participating in our discussion. You added some very interesting information to our discussion. Thank you for the proposed sources of literature for this topic. I asked the above question in May 2019. In the context of the current deep economic crisis caused by the SARS-CoV-2 (Covid-19) coronavirus pandemic, the crisis currently occurring in many countries, this question may take on a new meaning and the answer to this question may take into account the current crisis reality . In a situation of a deep economic crisis, a strong economic downturn, tax revenues to the central state budget and the budgets of local government units also drop. As a result, the condition of the state finances may almost automatically deteriorate significantly, it may increase the debt of the public finance system of the state. In such a situation, the possibility of the government realizing a fully balanced state budget or generating a budget surplus is unlikely.

Have a nice day, Best wishes,

Dariusz Prokopowicz

The increase in indebtedness of the state finance system is one of the consequences of the current economic crisis caused by the SARS-CoV-2 (Covid-19) coronavirus pandemic.

Best regards,

Dariusz Prokopowicz

Dear Izolda Chiladze,

Yes, that's right. A high budget deficit threatens the financial stability of the state's finances.

Thank you, Greetings,

Dariusz Prokopowicz

Dear Stephen Schmidt,

Yes, you have indicated important and key political aspects in the context of the issue of providing public goods for citizens and the purpose of effective implementation of public policy.

Thank you very much,

Best regards,

Dariusz Prokopowicz

Dear Izolda Chiladze,

Yes, I fully agree with your opinion on the determinants and significance of a high level of indebtedness in the state's public finance system.

Thank you very much,

Best regards,

Dariusz Prokopowicz