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Public Finance: Application of Government Budget Surplus

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Assess the implication of a government budget surplus on the following:

a. National saving
b. Interest rates
c. Private investment
d. Economic growth
e. Future living standards.

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Solution Summary

The solution assesses the application of government budget surplus in different areas.

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GOVERNMENT BUDGET SURPLUS: IMPLICATIONS

Government budget defined

Government budget is a forecast or an estimate by the government of its revenues and expenditures for a specific period of time. The period covered is normally one year or one fiscal year (http://www.britannica.com/EBchecked/topic/240155/government-budget). As such, it is based on forecasts of government collections in the form of taxes and other forms of income as against a forecast of its expenditures in carrying out of its functions through the various government departments and units. The forecast is therefore dependent on certain assumptions on changes or retention of certain fiscal policies related to taxation and government spending.

Budget Surplus

Comparing estimated revenues and expenditures, a budget surplus may exist under the following conditions: 1) government revenues are greater than expenditures and 2) Increase in government expenditures is more than offset by its revenues. As noted by a former budget secretary in a country in Asia, budget surplus or excess exists in a country despite a rise in expenditures because of a steep increase in revenue inflows.
(http://business.inquirer.net/22165/philippines-may-have-hiked-spending-but-budget-surplus-still-up)

Another online source also defines budget surplus as, "a situation in which income exceeds expenditures. It was seen as ...

Solution provided by:
Elisa Valdez, PhD
Education
  • Bachelor of Science in Business Administration, University of the Philippines
  • Master in Business Administration, Saint Mary's University
  • Doctor of Philosophy in Education, University of the Philippines
  • Doctor in Business Adminstration (IP), Polytechnic University of the Philippines
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