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How to Reduce/Contain Budget Deficit

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VoltaireI
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Post: #1
How to Reduce/Contain Budget Deficit

I have a large debt it almost 90% of my total GDP and my nation is on 3rd Straight Negative Growth (Recession). How to recover it and back my economy on good track?


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08.02.2016 08:47
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Ajay Alcos
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Post: #2
RE: How to Reduce/Contain Budget Deficit

Reduce your interest rates (at or within one and two percent). This will cause inflation to rise so it would be prudent to increase tariffs and create a trade surplus to compensate. I would increase spending exponentially on infrastructure to try and combat the effects of inflation whilst cutting expenditure reasonably in other areas (i.e. defence, exorbitant welfare/pensions). Otherwise in the wider scheme of things, I wouldn't worry about your debt level if I was in your position as its the norm when compared to other states. Just make sure to keep your money supply above your total GDP by at most 10 percent, and make sure to choose options in your tasks that won't be extremely detrimental to the economy and budget.

08.02.2016 10:57
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Lord Weasel
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he is a git
Post: #3
RE: How to Reduce/Contain Budget Deficit

in addition start projects investing in infrastructure and keep running them continuously, you cannot expect growth to be high without this!

you are in a very early quarter in which you cannot expect to have a surplus and should not be aiming for one, remember that a surplus merely means that your government is not investing in its economy.

Another thing you can do is increase excise taxes and lower income to a proportional level, ie the tax take remains at the same amount but the percentages alter. This leads to greater spending in your economy.

Beyond that do exactly what the previous response says, feel free to look at my states as what he has said combined with what I have has led to massive economies.

the next thing is reforms, money reform 2, admin, seperation of church and state, negative income tax, egalitarian transhumanism, and the rest at your discretion... this would be what you need to aim for.

08.02.2016 13:26
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Helsworth
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Post: #4
RE: How to Reduce/Contain Budget Deficit

I haven't seen in Ars that lowering the interest rate or increasing it has any noticeable effect on inflation. Decreasing the interests rate during a balance sheet recession can't be inflationary - since the recession is caused by higher nongovernment sector savings desire (i.e. people wanting to spend less/deleverage).
And technically speaking, lower interest payments means less money entering the economy. Usually, monetary policy is a blunt tool. Interest rate changes don't impact Animal Spirits all that much.

@Voltaire
You're almost in a position of having a neutral nominal budget. Like Ajay suggested, decrease your nominal interest rate by as much as you can every winter - so that interest payments will be lower in future.
Your economy tab for spring of 2001 says that you've experienced a real growth of 3.22%; while your inflation was negative compared to the quarter before.
Congrats for having full employment, by the way. Daumenhoch
You should definitely do an income tax reform. Either the NIT or the Flat Income tax. The former gives a boost to consumption, a reduction in GINI, and a minor reduction in bureaucracy. Whilst flat income tax works better with higher capital taxation (from my experience) - and you can get the above effects by doing this combo.


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08.02.2016 19:48
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Ajay Alcos
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Post: #5
RE: How to Reduce/Contain Budget Deficit

Helsworth Wrote:
I haven't seen in Ars that lowering the interest rate or increasing it has any noticeable effect on inflation. Decreasing the interests rate during a balance sheet recession can't be inflationary - since the recession is caused by higher nongovernment sector savings desire (i.e. people wanting to spend less/deleverage).
And technically speaking, lower interest payments means less money entering the economy. Usually, monetary policy is a blunt tool. Interest rate changes don't impact Animal Spirits all that much.

I concur considering other factors such as the variance of commodity prices, consumer habits and money printing have a greater effect on inflationary/deflationary quirks compared to solely tweaking interest rates. Reliance on capital controls or hiking interest rates alone to mitigate rampant inflation is an inadequate policy (as seen in Russia and Argentina in the past year) as using these tools for that purpose are as you put it, blunt. Hence, when compared to monetary tools, consumer and investor psychology are the greater underlying factors when it comes dealing with these types of windfalls.

09.02.2016 10:43
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Helsworth
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Post: #6
RE: How to Reduce/Contain Budget Deficit

Ajay Alcos Wrote:
Hence, when compared to monetary tools, consumer and investor psychology are the greater underlying factors when it comes dealing with these types of windfalls.

Very true. If Animal Spirits desire it, the private sector will expand regardless if the key interest rate is 2% or 10%. And if, for whatever reason or reasons, Animal Spirits are really depressed & remain so even with higher fiscal deficits, private spending won't be revived from its depressed levels until those Animal Spirits become optimistic again. If all households would take the vow of poverty & become frugal with their spending - that in turn would lead to smaller incomes & to very high unemployment figures, if the shortfall in private spending wouldn't be covered properly by either the foreign sector or the government sector - or both.


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This post was last modified: 09.02.2016 13:05 by Helsworth.

09.02.2016 13:04
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yangusbeef
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Post: #7
RE: How to Reduce/Contain Budget Deficit

Reduce education, welfare, subsidies, pension, and defense spending. Lower interest rates, increase money supply, decrease capital taxes, excise taxes, acquisition taxes, but increase tariffs, preferably to 5%. You should post ~4% growth after a couple winters of doing this. Also, choosing task options that benefits business(I.e. Raised subsides for rural areas and decreased regulation for various sects) should help somewhat, although it is optional. If it conflicts with your ideology, then do not do it.

Finally, reform negative income tax and pacifism ASAP. Annul national debt once you have a sizable budget surplus, preferably around 50-100 billion(if it gets any higher, then invest largely into administration and partially into safety and education.)

09.02.2016 20:05
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