The American Journal of Interdisciplinary Innovations
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10.37547/tajiir/Volume07Issue01-02
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CITATION
Bassam Malik Sarhan. (2025). Philosophical treatments of the general
budget deficit between acceptance and rejection. The American Journal
of Interdisciplinary Innovations and Research, 7(01), 6
–
13.
https://doi.org/10.37547/tajiir/Volume07Issue01-02
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© 2025 Original content from this work may be used under the terms
of the creative commons attributes 4.0 License.
Philosophical treatments
of the general budget
deficit between
acceptance and rejection
Bassam Malik Sarhan
Imam AL-Kadum College (IKC), Iraq
Abstract:
The issue of the general budget deficit is a very
important issue, as it includes the actual and planned
deficit by the government for a full economic cycle
approved by the law issued by the government
parliament. Perhaps the most prominent goal of the
financial deficit is for the government to appear before
individuals as being able to address the problems
suffered by projects and contractors with the
government. Here, it has put itself before a real test that
entails a moral obligation before individuals and a
financial obligation before how to cover the deficit that
may occur if the government does not address it. There
are a set of tools through which the government can
cover the deficit it has, including resorting to the
International Monetary Fund or the World Bank
(external borrowing) or through the central bank or
government and private banks operating at home and
abroad. Most developing countries resort to external
borrowing, which is one of the most dangerous types of
financing the budget deficit due to the obligations to pay
interest on this debt, which burdens the general budget
and makes it difficult for most of these countries to fulfill
international obligations and thus puts themselves in an
embarrassing position. On this basis, there are Others
resort to local banks or the Central Bank to borrow to
finance this deficit caused by the government’s promise
to pay obligations to those entitled to them.
Keywords:
Philosophical treatments, general budget,
acceptance and rejection.
Introduction:
Research Methodology
1- The importance of the research
: The research gains
its importance from the fact that it clarifies one of the
general phenomena that most developed and
developing countries suffer from, as this phenomenon
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is considered in some economies as an undesirable
phenomenon if it is associated with some procedures,
while this research focused on clarifying that the
phenomenon of budget deficit is sometimes an
economic goal for the financial policy maker in the
economy, while some researchers see it as important
if it aims to expand spending towards investment
projects.
2- The research problem
: The basic problem of the
research is based on the fact that most economic
literature has dealt with this phenomenon extensively,
while some economic schools have ignored
government intervention and believe that economic
balance can be achieved without government
intervention, contrary to what others see that
government intervention in directing public spending
is an economic goal.
3- The research objective
: The research aims to market
economic ideas in an easy way, so that researchers
have a sound vision based on the major economic
schools that have addressed the issue of the financial
deficit.
4- Research hypothesis
: The research is based on the
hypothesis that the phenomenon of financial deficit in
developing economies is often to cover the
government deficit to meet the demand for resources
and for the operational aspect, and neglects the
investment aspect.
INTRODUCTION
Economic schools differed in accepting or rejecting the
idea of the budget deficit, based on their belief in the
size of the state's role and the extent of its intervention
in economic activity. Throughout the nineteenth
century, state spending was limited to the four main
functions: defense, security, the judiciary, and public
benefits that do not target profit. The principle of
annual budget balance was the principle that countries
followed at that time until the global depression crisis
occurred in the first third of the twentieth century
(1929-1932), when the ideas that were prevalent
during that period were unable to address this crisis,
and Say's law, which believes that supply creates equal
demand, failed. The concept of effective demand and
the necessity of increasing public spending emerged,
so the problem turned into a demand problem and not
a supply problem. It became possible to accept the
idea of the budget deficit, and interest became in
economic balance and not in the annual budget
balance.
Thus, the conflict between economic schools of
thought continued, as new ideas emerged that
deemed it necessary to reduce the role of the state
again, and reduce public spending, which led to
continuous deficits in the general budget, resulting in an
increase in government borrowing, and an increase in
taxes on income and wealth, which weakened the
incentive for private investment. These ideas also called
for reducing social subsidies that encouraged the
phenomenon of unemployment, which contributed to
increasing stagflation. It became the state’s duty to
cover the shortage in local funding sources, which
became difficult to match the continuous increases in
public spending, so the funding problem became one of
the most prominent problems facing developing
countries, which forced them to turn to foreign loans
that are often conditional on complex political and
economic conditions.The budget deficit is a
phenomenon that can be observed even in developed
countries. Some of these countries have exceeded the
acceptable percentage of the GDP, and this percentage
has developed over time. If the budget deficit leads to
growth in the GDP at a rate greater than the growth of
the deficit, this means that the increase in public
expenditures has led to the development of the
economy. Thus, the phenomenon of the general budget
deficit becomes an acceptable phenomenon that
stimulates the economy.
The first section: Theoretical views on the general
budget deficit
This section will review the theoretical views of the
economic schools that dealt with the phenomenon of
the financial deficit in the general budget and the means
to get rid of this deficit through a series of financial
procedures as follows:
1. Classical (traditional) theory.
2. Keynesian theory.
3. Modern classical theory.
4. Supply side school
1- Classical theory:
Classical thought is based on the assumption that the
capitalist
system
automatically
tends
towards
equilibrium at the level of full employment of all
productive resources, relying on Say's law (Santayana:
1979, 28) which states that (supply creates equal
demand).
That is, every increase in supply or production creates
an equivalent increase in spending, which means that
there is a flow of goods that is met by a similar flow of
cash, and accordingly a balance occurs, under the
principle of the invisible hand, which was invented by
the economist Adam Smith in the environment of
individual economic freedom, since achieving the sum
of individual interests means achieving the public
interest of society, at the level of full use of economic
resources, and total demand cannot be less than total
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supply. The individual, as Adam Smith sees it, is the
basis of economic activity, and the invisible hand leads
to equilibrium (equilibrium of supply and total
demand). The individual is rational and enjoys
economic prudence in managing his individual project,
so he becomes the basis for reaching a state of
equilibrium and economic stability, as the classic
assumed the rationality of the individual project, the
ability to produce, increase use, and achieve economic
stability, which are ideas that were found in Europe in
the period following the process of capitalist
accumulation (the nineteenth century), but after all
this, what is the role of the state? What are its duties
and tasks towards society? Classical thought
responded to this by reducing government activity and
limiting government intervention to only four main
areas: defense, security, the judiciary, and public
utilities. The government must withdraw from
economic activity and focus on how to finance its four
aforementioned areas of spending only, so that public
revenues are always equal to public expenditures,
based on the principle of (annual budget balance), and
financing is without any economic, social, or political
purposes. The general budget must be compressed so
that it covers public expenditures through regular
revenues (taxes), and classical thought categorically
rejected the idea of resorting to loans or increasing the
issuance of currency. From here it becomes clear that
this thought categorically rejected the idea of a
government budget deficit, and considered loans as
deferred taxes, as the government resorts to
increasing taxes when the loan is due, and here wealth
is transferred from taxpayers to bondholders, i.e. the
burden of taxes is transferred from consumers to
investors, sinceBondholders are people who are
unable to invest. In this case, current consumption will
be financed at the expense of savings and then
investment, as the classicists believed that taxes
should be imposed on consumption and not on savings
because they believed that savings are completely
converted into investment.
It should be noted that the classicists permitted
borrowing (extraordinary revenues) in exceptional
cases, such as wars and economic disasters.
Ricardo's opinion on the idea of public debt was that
its real burden was not only the annual payments to
government bondholders, but also the loss of the
principal. As for Adam Smith, he opposed the budget
deficit, as it leads to borrowing and thus withholding
money from the private sector, directing it to
government consumption, and it also resorts to taxes
and
transferring
wealth
from
taxpayers
to
bondholders, who direct it to consumption. The
classical position on the issue of monetary issuance
was also a reductionist position and they considered it
an unhealthy situation, because it would generate
additional purchasing power that would result in an
imbalance between supply and demand, leading to
inflationary pressures (Draz: 1989, 83). In any case, we
can summarize the financial foundations of classical
thought as follows:
1- Defining the aspects of public spending exclusively.
2- Achieving financial neutrality in all economic activities
of the state.
3- Full commitment to the principle of budget balance
(rejecting the idea of budget deficit) (Al-Qadi: 2011, 65)
4- Savings are completely transformed into investment
and individuals do not keep money (it has no value) as it
is only a means of exchange and there is no motive to
keep it (what is not consumed is invested).
The regular public expenditures were covered by
regular revenues only without resorting to loans or
increasing the issuance of money (Robinson and
D.Wrightsman: 1988, 156)
2-Keynesian thought (counter-revolution):
The classical thought prevailed throughout the
nineteenth century and the opinions of its thinkers
Adam Smith, Ricardo and others prevailed until the
Great Depression (1929-1932) occurred. Then the
counter-ideas appeared from the economist John
Maynard Keynes, who criticized Say's ideas and his law
of markets, because of his complete neglect of the
demand side and his emphasis on the supply side only,
as Keynes confirmed that the former plays a major and
direct role in determining the size of production, income
and the level of employment, and he confirmed that the
state of imbalance in the economy arises from the
failure to achieve a balance between total supply and
demand, thus generating economic cycles. In a
recession, aggregate supply is greater than aggregate
demand (excess supply), causing a crisis in the sale of
goods, leading to a decline in prices and profits and an
increase in unemployment, which then leads to a
decrease in investment. However, if the economy has
reached the stage of full employment, at which the
volume of production and income cannot increase
significantly in the short term, then signs of inflation
begin to appear under the effect of any increase in
aggregate demand (excess demand), if two cases
appear, namely: cyclical depression, and inflation that
occurs in the stage of full employment (Al-Shammari:
2018, 46)
Spontaneity, market forces, and economic freedom
failed to address the depression crisis at the end of the
twenties of the last century, as the Great Depression in
that period did not lead to a reduction in prices, and
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Say's law was not achieved by making supply create
equal demand, so goods piled up in warehouses and
unemployment rose to its highest levels.
The depression was the largest economic crisis
witnessed by the Western world, and classical
economics, at that time, did not have a developed
theory explaining persistent unemployment or any
policy measures followed to solve the problem, and
many economists at that time actually recommended
government spending, as a way to reduce
unemployment, but they did not have a
macroeconomic
theory
by
which
their
recommendations could be justified. Keynes wrote his
important research entitled (The General Theory of
Employment, Interest, and Money) in the thirties, after
Britain suffered from a double-digit unemployment
complex and the United States was in its most severe
recession. Keynes's views and analyses appeared
against classical thought, as he considered the cause of
the crisis to be the lack of effective aggregate demand,
and he strongly emphasized the necessity of state
intervention in economic activity and considered it the
only entity capable of playing the role of the balancing
factor in aggregate demand, so it must intervene
effectively and directly in economic life, and called for
the use of fiscal and monetary policies together, as
reducing the interest rate leads to reducing production
costs and increasing the incentive for investment, as
well as reducing taxes and increasing public spending
in the field of services and public works to absorb
unemployment, and creating cash incomes, all of
which lead to an increase in the volume of aggregate
demand for consumer and investment goods, even if
this leads to creating a deficit in the general budget.
Here, the idea of accepting the financial deficit and
rejecting the principle of permanent budget balance
appeared for the first time, and these ideas were
widely accepted, so state intervention in economic
activity increased significantly, and the new thought
moved capitalism to a new and advanced stage, which
is the stage of state monopoly capitalism, in which
capital is mixed with the state apparatus and used for
its own benefit. This great expansion of government
intervention led to important results in economic
reality, some of which we present (Chandler: 1992, 82):
1- The government in capitalist countries exploited this
intervention to justify the huge military spending, and
monopoly state capitalism emerged.
Government spending expanded from the end of
World War II until the early seventies of the last
century. For example, government spending in the
Federal Republic of Germany reached 47.1% of the
total domestic product, in Italy it reached 43.2%, and
in America it reached 35.04%, and for the same
percentage, according to statistics for the year 1975,
part of this2- The above percentages are allocated to
social services such as (education, health, housing and
public facilities), and transfer payments, such as food
support and social security payments.
3- The state owns many basic projects such as
transportation, energy and mining, which contributed
to increasing the state's revenues or what is known as
the public domain revenue.
This intentional or deliberate deficit in the general
budget, and the increasing growth of government
spending, achieved great gains for the working class and
the poor segments, as the real wages of workers
increased, and people enjoyed many benefits and
guarantees, which are proven, were social costs of
capital borne by the bourgeois classes, due to the
capitalist prosperity locally and globally (Zaki: 1988, 161)
Keynesian ideas prevailed throughout the forties with
their interventionist financial views, and Hans'
colleagues and students elaborated on the analysis of
financial policy tools, establishing its foundations under
the name of compensatory finance and functional
finance, and its elements became:
1. Public expenditures: It became a tool to ensure the
operation of public facilities as well as a tool to influence
the national economy (consumption, investment and
development of savings) to create a balance achieved at
a higher level of use and income.
2. Revenues: It is divided into:
A. Taxes: It is not used for financial purposes only, but
to achieve economic and social goals, such as reducing
consumption, encouraging offspring, reducing class
inequality and directing investments.
B. Loans: Not only an exceptional means, as we have
noted in classical thought, but a normal way to obtain
the necessary revenues, and resorting to them has
become a means of influencing the financial market and
directing capital, and absorbing excess purchasing
power to combat inflation, and their importance has
increased significantly due to the inability of taxes to
cover public spending.
C. Money issuance: It is a means of creating purchasing
power that can give the economy a force that increases
effective demand, and raises the level of income until
the economy reaches the level of full use.
3. State budget: State finances have become a huge
pump that absorbs individuals' income to redistribute it
to others (raising it through taxes and loans and
distributing it through spending) and the aim is to
achieve the state's economic and social goals, and the
budget has become a reflection of the state's economic
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activity, and the principle of arithmetic balance has
been abandoned and the goal has become economic
balance.
3- The modern classical theory: - The Keynesian
interest in fiscal policy and the neglect of the role of
monetary policy was faced by Milton Friedman and his
colleagues during the fifties, when Friedman presented
his views in attacking those who said that monetary
policy was sterile in the thirties, in the book he wrote
with Schwartz in 1963, which was titled (Monetary
History).He stressed that the failure of the Federal
Reserve to prevent bankruptcies and the decline in the
cash balance, at the end of 1930 to 1933, was
responsible for the recession being serious (Rudiger
Denbusch, Stanly Fisches: 1993, 61)
The ideas of the neoclassical school led by Friedman in
the fifties, which represented a counter-revolution to
Keynesian thought, attacked state intervention in
economic activity, and confirmed that the capitalist
system does not have serious flaws that expose it to
crises, but rather the flaws lie outside the system,
which represent an obstacle to the work of automatic
market forces due to government intervention, as
public spending, taxes and control over private
economic activity increase, which leads to this system
not working freely, as it explained this based on what
the American economy suffered during this period in a
sharp rise in unemployment rates, and the first
prolonged decline occurred during the years 1961-
1985, when unemployment reached a peak rate of
7.1%. Since the beginning of the seventies, things have
turned upside down, and stagflation has appeared, as
unemployment coexisted - for the first time - with
inflation, as prices rose with the existence of an
economic depression. The neoclassical s believed in
the invisible hand that achieves harmony between self-
interest and public interest. The Chicago school, known
as the monetarist school, attributed all the crises and
problems suffered by the capitalist system to
Keynesian ideas. Friedman's ideas were among the
most important features of this school, as his ideas
were concerned with money and monetary policy. He
and his supporters attributed all contemporary
capitalist problems, such as inflation, unemployment
and recession, to the mistakes of monetary policy
alone (Bernheim: 1989, 321), which were deepened by
Keynes's government intervention policy. Friedman
directed most of his attention to achieving monetary
stability, not achieving full employment as Keynes
wanted when he placed it at the top of the goals of
economic policy. Friedman stressed that this stability
can only be achieved by controlling the amount of
money, in terms of its growth and in a manner
proportional to the growth of real output. Therefore,
all sources of money supply growth must be curbed, the
most important of which is the growth of the state
budget deficit, which has worsened with the increased
government intervention in economic activity and the
increase in its current spending on social security, which
is done through the issuance of currency, raising income
taxes and increasing the domestic public debt.
Accordingly, the monetarists proposed gradually
reducing the ratio of this deficit to the GDP by reducing
current public spending, especially on social security.
This school also called for reducing public investments,
and its followers stressed that after reducing the current
deficit, the remainder of it should not be financed in the
general budget through inflationary financing, and the
solution is to resort to interest rates in the short term,
which is much better than resorting to taxes in the long
term.Raising the interest rate reduces bank credit,
increases the money supply, and helps rationalize the
use of resources. The monetarists sought to link the
movement of the economy to a fixed rule that governs
monetary policy (determined by the monetary
authorities at a fixed growth rate for the money supply
in line with the growth rate of the economy in the long
run).
This school sought to prove that the budget deficit leads
to raising interest rates and crowding out the private
sector if the government seeks to borrow from the
public, as the expansionary effect of the government's
role is met by a reduction in private sector demand.
4- Supply-side school:
Another trend emerged within the monetarist school
(neoclassical), known as the supply-side trend, which
has radical origins. This trend emphasized the need to
reduce tax rates in order to improve investment and
raise the economic growth rate, which in turn increases
the total tax revenue.
This trend focused on the supply-side economies, as the
problem facing capitalism is how to revive the total
supply and not the total demand, relying on the validity
of Say's law, and denied the reality of the periodic crises
that the capitalist system goes through.
The economic balance between total supply and
demand is achieved in the event of recession and idle
energy by working to achieve an increase in production
(supply), and this increase in production is accompanied
by an increase in income, so a demand equal to the
increase in supply arises, and the balance is achieved
automatically (R.Dornbusch, S.Fischer, 151). Then the
new combination emerged that brings together the
supporters of the monetary school, calling for reducing
the financial deficit (government budget deficit), by
reducing the growth rate in the money supply, and
distancing the state from economic activity, and supply-
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side economics calling for reducing taxes. This
combination
formulated
the
Reaganite
and
Thatcherite economies in both the United States and
Britain. By the early seventies of the last century,
Keynesianism as a system followed in the capitalist
system had reached the peak of its contradictions, with
increasing unemployment, severe inflation and
economic recession. The time became very suitable for
the emergence of ideas that oppose Keynes and
government intervention. The conflict was at its most
intense between Keynesians and monetarists, as the
former exaggerated fiscal policy and neglected
monetary policy, while the latter focused on monetary
policy and neglected fiscal policy. Former US President
Ronald Reagan adopted the combination we Reducing
tax rates and following a strict monetary policy by
raising interest rates and restricting the amount of
credit granted to the government and relying on the
private sector and market forces and reducing the
large size of the government, as many measures were
taken, including reducing employment and selling
public projects and transferring many services
provided by the government to the private sector
(education and electricity) (Zaki: 1998, 211)
What resulted from the Reagan policy was the
transformation of the United States, starting in 1985,
into the largest debtor country, and its internal deficit
(federal budget) did not decrease and its external
deficit (balance of payments deficit) tended to increase
and the result was economic recession and
unemployment.
It is important to note that in 1980, the federal
government in the United States was deducting up to
57% of the highest income earned by the citizen. In
1988, the highest tax rate reached 33%. As for the
United Kingdom, the maximum tax rate reached 98%
of capital income under the Labor government. During
Thatcher’s era, this maximum limit was reduced to
40%. The significant increase in the budget deficit in
the United States of America had great effects on the
entire world, not only in the aforementioned country
due to the size and importance of its economy. Also,
the policies followed in dealing with this phenomenon
are an important part of the structural reform
(correction) policies provided by the International
Monetary Fund and the World Bank to developing
countries, so that international aid and loans continue
(Al-Faris: 2002:22).mentioned a little while ago, and
aimed The second section: The actual effects of the
budget deficit on some monetary variables:
First: The theoretical concept of inflation:
The monetary school defines inflation as any increase
in the monetary quantity that leads to an increase in
prices (Annaba: 2009, 88)
In many countries of the world, especially countries that
cannot activate taxes in a way that covers their
expenses, they resort to issuing money or local
borrowing to finance the budget deficit, which may lead
to inflationary pressures, so the reciprocal relationship
between the financial deficit and inflation appears to us,
as the higher the inflation rates, the higher the
government spending at rates faster than the
government's revenues, which forces it to issue more
money. The relationship between the money quantity,
the financial deficit and inflation can be explained as
follows:-
When a monetary increase occurs, prices rise. This
increase in inflation leads to an increase in government
spending, but without a similar increase in revenues,
which leads the government to resort to financing this
deficit by creating money, which leads to a greater
increase in prices, and thus the value of the currency
decreases. (Zaki: 1998, 73)
Based on the analysis of the monetarists, the financial
deficit and the growth of money are the main cause of
inflation, as the monetary authorities resort to
increasing the money supply whenever the budget
deficit leads to pressures on interest rates, which leads
the monetary and financial authorities to practice their
monetary policy by controlling interest rates* in a way
that affects the available liquidity.
Second: Financial treatment of inflation:
The financial treatment of inflation differs, whether the
country is advanced or backward, as developing
countries adjust government spending faster than
adjusting revenues, and if these countries try to restrict
their spending during periods of inflation, they will find
it difficult to reduce their commitments in real values.
On the other hand, the situation is reversed in
developed countries, as revenues in monetary terms
maintain their levels in relation to the increase in prices,
while public revenues in developing countries slow
down significantly.
The process of money creation, deficit financing, and
the government's use of its right to do so, in addition to
the use of temporary advances, all led to an expansion
in public spending, which was reflected in raising the
growth rates of monetary income. Since domestic
borrowing is not derived from real savings in the
economy, the result is the creation of additional
demand that works to raise the volume of aggregate
demand, which leads to an imbalance between the
monetary and commodity currents (supply and
demand), and then prices rise significantly, which is a
very clear case in developing countries due to the weak
flexibility of the production system.
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Third: To address the global issue of monetary
inflation:
In developed countries, the matter is different, as
increasing government spending leads to an increase
in aggregate demand (since the former is one of the
items of the latter). Therefore, this increase in public
spending leads to real increases in income according to
the idea of the multiplier due to the length of the
consumption chain and the flexibility of the production
apparatus. Thus, there is compatibility between the
two currents (monetary and commodity), so there are
no major differences in the economic balance.through
it to combat the government deficit and curb inflation.
The expansion of the deficit financing process is of
course a debt to the economy, and as we have shown
above, if there is no commodity flow corresponding to
each new monetary unit, the money loses its value,
because it does not find what it obtains from national
production, whether goods or services, so prices rise,
and the purchasing power of money decreases, i.e. its
real value deteriorates, and then living standards
decrease, because cash incomes are usually
characterized by stability, because they are governed
by laws, so inflation deducts a significant part of the
value of these incomes, and also the prevalence of the
deficit financing phenomenon often leads to an
increase in the money supply, which is a proven fact in
developing countries, and this increase led to an
increase in the liquidity of commercial banks and the
liquidity of the public, as this increase was directly
linked to the deficit, so the expansion of the scope of
public spending and its financing by inflation through
the growth of current expenditures due to the increase
in social services, such as (subsidies and armaments)
and the leakage of this liquidity to individuals through
wages and salaries, i.e. consumer spending, and to the
business sector through sales and contracts with the
government, led to an increase in cash liquidity, and
the result was resorting to the banking system as well
as Further increase in the money supply and so on
during sales and contracts with the government, led to
an increase in cash liquidity and the result was
resorting to the banking system as well as a further
increase in the money supply and so on.
Fourth: Criticism and evaluation of the phenomenon of
the financial deficit The issue of the budget deficit is
one of the issues that enjoy great importance at the
general level set by the financial policy maker. In most
advanced economies, we notice that the deficit is
continuously targeted, and its purpose is to achieve the
goals and ensure the success of the economic plan set
by the government throughout its term in power. The
deficit, from a general perspective, is the insufficiency of
public revenues to meet the actual needs of public
expenditures that the government needs to meet the
requirements of individuals and projects that it wishes
to establish during a specific period of time. According
to the classical theory, looking at the issue of the deficit
was not of great importance as a result of this theory
focusing on the real dimensions of the market, as it did
not give any significant importance to this
phenomenon. It believed that the market mechanism
was capable of creating the desired balance that would
rid the government of the financial problems that stand
in its way, while on the contrary, the Keynesian view of
the phenomenon of the deficit was based on the actual
and pivotal role of the government in creating the
process of balancing between the two sides of revenues
and expenditures, while giving the main role to the
government in addressing the planned deficit.
Depending on the financial procedures followed in the
concerned economy, Keynes had a serious and real view
of this phenomenon and other financial phenomena
that would hinder government work, which depends
primarily on the existence of flexibility in terms of
spending without falling into financial problems that
would hinder the establishment of government projects
and the financing of government operating expenses in
the short and medium term. These treatments that
Keynesian theory contributed to are still working to the
present time with high efficiency to reduce the
problems that hinder government work, by unifying a
series of financial procedures to mitigate the severity of
the crisis that may affect the economy at any time as a
result of problems.
Certain causes stop the flow of money from abroad to
the interior or the occurrence of some monetary
phenomena such as the phenomenon of inflation, which
is one of the phenomena that has a negative impact on
the balance of public revenues and the ease of obtaining
them, either through the rise in some global prices of
goods of general use or as a result of internal problems
resulting from the general policy of the government,
then the financial and monetary institutions within the
country are exposed to a crisis that requires direct
government intervention to address it, and this is either
by abandoning some non-sovereign expenditures and
moving towards necessary spending, in addition to
leaving some projects that need continuous financing,
until the crisis is removed and the economy enters with
the treatment procedures.
CONCLUSIONS
After this philosophical review of the phenomenon of
financial deficit, and the treatment mechanisms
proposed by the most important economic schools, the
The American Journal of Interdisciplinary Innovations
and Research
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The American Journal of Interdisciplinary Innovations and Research
researchers reached the following:
1-The phenomenon of financial deficit is not a negative
phenomenon, but rather a financial goal sometimes by
some advanced economies to reach the peak of
government performance, by establishing strategic
projects with long-term financial returns.
2-The phenomenon of financial deficit is characterized
by being one of the old economic phenomena, as it is
based on the government's expectation regarding
public revenues and their sufficiency to meet the
actual need for public spending directed to meet the
general needs of individuals and projects.
3-This phenomenon in some economies is considered
a negative phenomenon because these economies rely
on the method of lavish spending to finance some
unnecessary expenses, which contribute to burdening
the general budget with expenses that do not
necessarily exist in the chapters of public spending.
4- Some economies resort to internal and external
borrowing to finance their general budgets in terms of
expenditures. This helps solve the problem in the short
term, but in the long term, it is one of the problems
that burdens revenues, a large part of which will go to
cover the interest due as a result of the external debt,
the interest of which is very high compared to its value,
which limits the achievement of economic growth in
this country as a result of adopting the method of
external borrowing.
5- Adopting a broad method in directing public
spending has a negative impact, especially in rentier
countries that depend on a single export commodity to
obtain their revenues. This is an important expectation
because economic recession or sudden wars are an
inevitable result of the rentier economy losing its
revenue and being exposed to a large debt shock that
may require a long period of time to get rid of.
Recommendations
The research recommends the following points that
would address some of the problems facing financial
policy makers:
1- That public expenditures be directed effectively to
meet public needs (operational and investment)
without the need to find new spending doors that do
not match the actual expected revenues.
2- That government policy be a clear policy that adopts
the principles of global transparency in presenting its
expenditures, while giving great importance to
developing public revenues by directing public
spending towards active economic sectors that can
achieve high revenues and develop in the long term.
Avoid borrowing from international institutions (IMF
and World Bank) as well as from international banks due
to the high interest rate on debts from these
institutions, and thus the cost of the debt is greater than
its value.
- The expected interest on this debt is zero, and the local
banks and the Central Bank are directed if necessary to
meet the actual need to increase public expenditures. 4-
Finding quick financial solutions by reducing military
spending, which has very high costs due to the high
prices of modern weapons and their continuous
development, requires those who develop the
armament plan to keep pace with these developments
quickly and accurately.
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Rudiger Denbusch, Stanly Fisches, Gorden p. Sparts,
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Khaled Shehadeh Al-Khatib, Hamad Zuhair Shamiya,
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