Implications of budget deficit on economic growth - case study of the Republic of Macedonia
Implications of budget deficit on economic growth - case study of the Republic of Macedonia

Summary/Abstract: Having a balanced budget is very important for achieving long-term and sustainable economic growth in everyone country. Namely, the budget itself is a very powerful and useful tool and instrument for defining and realizing development policies in a country. The usefulness and the efficiency of this instrument is conditioned by its balance (or deficit). Budget deficit cannot be analyzed if abstracted and separated because it influences large number of macroeconomic trends, but it is also under influence of numerous macroeconomic factors. The causal connection between the deficit and the economic growth can be perceived through the fact that positive economic growth generates additional public revenues. Therefore, the government should choose between pro-cycle or counter-cycle fiscal policy. Negative rate of economic growth causes contraction in the economy, and as a result of this it is certain that the expansive fiscal policy accompanied by large budget deficit is not appropriate in periods of economic growth. Economic growth has reversible influence on budget deficit. In fact, the best way to decrease budget deficit is to promote economic growth. If economy is in progress, then it is real to expect increased tax revenues, without having the necessity to increase tax rates. Therefore, boosting economic growth is the least painful way to decrease budget deficit. Having all that in mind, governments should be careful when planning public revenues and expenditures i.e. when planning the budget deficit level, all for the purpose of creating preconditions for reaching the aimed level of economic growth.

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