Number: RL33657
Title: Running Deficits: Positives and Pitfalls
Authors: D. Andrew Austin, Government and Finance Division 
Abstract: Deficits can seriously harm national economies. In the short run, fiscal overstimulation leads to inflation. In the long term, deficits either reduce capital investment, which retards economic growth, or increase foreign borrowing, which swells the share of national income going abroad. Governments can spend more than they collect in revenues by printing money, which causes inflation, or by borrowing. In the long run, governments that fail to repay borrowers, at least to the extent of stabilizing the ratio of government debt to gross domestic product, risk default and bankruptcy.
Pages: 8
Date: January 2, 2008