How much fiscal deficit a country can afford to have?
The text book economics says it should not be more than 3%-4%. However, in a developing economy, where the tax revenues are not enough to finance growing expenses of the government which has to spend more on creating infrastructure and jobs, the fiscal deficit can go a little higher.
Also, in case of economic slowdown and recession, the governments are recommended to run higher fiscal deficit. That is because higher government spending can generate more demand and lift consumption. However, this should only be a temporary measure. Eventually, higher fiscal deficit leads to slower growth in the economy.
Published 01 July 2019, 11:01 IST