60-Twin_Deficits

The huge size and scale of the fiscal deficits

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Unformatted text preview: g one of the most important issues in economic policy at the moment. There is a fierce debate between those who believe that governments must take drastic steps to consolidate (reduce) their borrowing through fiscal austerity measures and those who oppose fiscal tightening believing that it might bring about another recession and a possible depression. The UK Coalition Government (elected in May 2010) has opted to accelerate the timetable for fiscal deficit reduction. They have decided that the main burden of deficit reduction will be from reduced spending rather than increased taxes see the chart below which includes 2011-12 forecasts. The case for reducing the fiscal deficit in the UK 1. High levels of government debt threatens financial stability and the UK's AAA credit rating 2. Higher debt and future taxes might crowd-out the private sector's ability to expand i.e. higher taxes and higher interest rates will curb demand and ability to fund investment 3. It is inequitable to leave future generations with excessive levels o...
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