Does a large external debt harm the well being of a country's citizens?

Question:

Does a large external debt harm the well being of a country's citizens?

Deficit Financing:

Many governments are faced by a budget deficit since they aren't able to raise revenue that will satisfy their planned expenditure. Therefore, the government finds other sources and this includes obtaining loans from other nations.

Answer and Explanation:

Yes, a large external debt harms the well being of a country's citizens. When the government accumulates large external debts, there are chances that the wellbeing its citizens will be affected. This is because in repayment of these debts the government may opt to look for other sources of revenue to collect resources to finance these debts. One of the revenue sources that a government may opt is to increase the tax rates or to introduce new taxes. When this happens the cities will be forced to pay more tax from their income leaving a less proportion of income for consumption, therefore, their well being will definitely reduce.


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Long-Term Debt: Definition, Cost & Formula

from Financial Accounting: Help and Review

Chapter 8 / Lesson 7
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