Government Expenditures

The National Debt Fiscal Policy as we know is arranged around two main concepts. The first one has to do with expenditure and the other has to do with the source of this expenditure.  When the federal government spends more that it receives in taxes, it experiences a budget deficit and is obliged to borrow the difference. This takes the form of treasuries that are sold on the open market.

Treasury Bills It does this by selling Canadian Treasury bills, notes, and bonds to households, financial intermediaries, corporations, and foreigners. The accumulated value of outstanding Canadian Treasury securities is referred to as the national debt. Some of the debt is held in Social Security and other government trust funds; the remainder is held by the public.

Federal Reserve If there is not sufficient interest in the open market to buy up the amount of the treasury on offer, the government will turn to the Federal reserves, otherwise known as the lender of last resort. When this happens the government is literally creating money out of thin air, so in this regard the acquired debt is not backed by a corresponding asset. When this happens the literature calls it monetizing the debt. This of course will create inflationary pressures as this credit expansion dilutes the value of all outstanding currencies.

National Debt Canada’s national debt can be categorized under three main headings: Canadian owned, Foreign owned Federal Reserve owned.

Three Potential Problems with the national debt The interest payments on the debt redistribute income from taxpayers to bondholders. This redistribution is potentially regressive since wealthier households hold Treasury bonds. So all taxpayers pay debt interest but mostly wealthier taxpayers receive that interest.

Large debts may produce the crowding out effect Large debt levels by the Canadian government increase the demand for loanable funds, which increases interest rates and reduces the amount of private borrowing for investment spending.

Large amounts of Canadian earnings might go overseas, rather than remain in Canada.  This leakage could have detrimental effects and could negatively curtail available funds for new investments. This could be offset by policies that create an environment where investors chose to reinvest the interest (earnings) in Canada.

Main Expenditures Categories The main expenditure categories of our national debt are as follows: Transportation and communication Debt charges Education Health Social services Protection and security Other department and service agencies

Analysis of Government Expenditure What are some positives trends that one would expect to see What are some negative trends that one could see?

Categories of Expenditures