Question

Discuss the issue of deficit reduction.

Answer 1

The ways of government budget deficit reduction are the following:

(i) Decreasing expenditure

(ii) Increasing revenue

(i) Decreasing expenditure

a) The expenditure of government should be decreased by making government activities more planned and effective.

b) The government can encourage private sector to undertake capital projects.

(ii) Increasing revenue

a) Higher taxes imply higher income earned by the government. Also, new taxes may add to the revenues of the government.

b) The government can sell shares of Public Sector Undertakings (PSU disinvestment) to increase its revenue.