Public Borrowing in the Philippines

2777 Words May 25th, 2012 12 Pages
Public Borrowing

Public borrowing defined

Public borrowing is money government borrows to fund public spending, the total amount of money that a country's central government has borrowed to fund its spending on public services and benefits.[1] Public debt - the total of the nation's debts: debts of local, state, and national governments; an indicator of how much public spending is financed by borrowing instead of taxation. [2]

Origin of Public Borrowing [4]

Mercantilist Period (1500-1750)

European economists between 1500 and 1750 are considered mercantilists. This is the era of merchant capital, dependent on connections between social and productive systems. [4] Mercantilism started it all, during this era colonies
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In order to pay for these projects, the government must finance part of their expenditures. When a government borrows money it also avoids the excessive tax burden that such payments would involve in a single tax period. Public borrowing is generally believed to have an inflationary effect on the economy and for that reason is often resorted to in recessionary periods to stimulate investment, employment, and consumption.
 To finance expenditures.
 Due to its inflationary effect on the economy to stimulate investment, employment, and consumption.
 To meet temporary needs, as when estimated revenue falls below or is exceeded by estimated expenditures.

Public debt is advantageous in the sense that part of the national funds are secured at an interest rate lower than that provided to private industry and in that the financial operations of government are funded on a permanent basis. It may also have an expansionary effect on employment and production during times of high unemployment. The disadvantages are that unjustifiable projects may be undertaken because the full burden of payment is postponed; that the government's demands may become so large that the interest rate on government bonds will rise to the point where money is diverted from private enterprise; and that too great a debt may induce governments to depreciate currency or default on
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