The Issue Of Public Debt

1453 Words6 Pages
1. Introduction Over the last half century, most countries in the world have seen significant development in their economies and Ghana is no exception. As most countries experience significant development, there is one key issue which underlies this development but has mostly been ignored by empirical research: that is, the issue of public debt. Public debt has become relevant in the world economies because of its perceived contribution to economic development. The continuous improvement in most world economies requires investment in infrastructure, education, social welfare, health and other sectors of the economies. The huge expenditures associated with such investments make it challenging for countries to fund them from tax revenues and this normally leads to high budget deficits. Budget deficits caused by such huge investments have to be financed, but the key question that confronts policy makers and most government economists is; how should the budget deficit be funded? Public finance provides three alternative sources of financing deficits; taxes, debts and user fees (Rosen and Gruber, 2008). Most developing nations often opt for debt as the best option for financing budget deficits which often is due to the weak tax regimes in these countries. The weak tax regimes in most developing countries make it challenging for them to generate enough tax revenue to finance their budget deficits. Public debt becomes particularly relevant to a country’s economic growth and
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