Theory question 111
Public Finance(a) What are the sources of government revenue?
(b) How does a government finance its budget deficit?
Show the model answer
Model answer
(a) Taxes (direct and indirect); fees, fines and licences; rents and royalties (e.g. from oil); profits of public enterprises; grants and aid; loans (internal and external); sale of government property.
(b) Borrowing from the public through bonds and treasury bills; borrowing from the central bank (printing money); borrowing from commercial banks; foreign loans; grants and aid; drawing from reserves; sale of government assets (privatisation); raising taxes.
Explanation
A deficit means spending exceeds revenue, so the gap must be borrowed or covered from other sources.