Question

What is deficit bias and what are it’s causes? Why might deficit bias vary across countries? Propose and explain any two measures for tackling deficit bias.

Answer 1

Ans. In simple words , Deficit Bias refers to the situation in which government allows the Budget Deficit or the Public Borrowing to Increase. Two causes of Deficit Bias are : 1) Increase in Government Spending due to several public welfare projects. 2) Decrease in the Revenue of the Government due to unplanned events like natural disasters etc. Deficit Bias varies across different countries because every country have it's own needs and revenues and they borrow accordingly , So Deficit Bias may vary across countries due to presence of different conditions in different countries. Two ways for tackling Deficit bias are : 1) Increase in Taxes - This would increase the revenue of the government and the need for borrowing would reduce. 2) Cutting Public Expenditure - A Small cut in the Public Expenditure would also save some revenue of the government and the need to borrow would simultaneously reduce.

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