Скачать или смотреть Government Budget Constraint

I discuss the expenditures and sources of revenue that make up a Government's budget constraint. I then explain what is meant by a balanced budget.

A Government can spend money on a number of things. Here we focus on Government spending. This is characterised by spending by Government on goods. The Government also spends its revenue on transfers, for example through welfare payments. A third outflow for a Government is its expenditure on interest payments for past debt obligations.

This expenditure is balanced by the Government's revenue. Revenue is usually assumed to come primarily through taxes. Tax revenue can come from a number of places, such as VAT and income tax. The Government can also obtain finance by printing money and using this. This is known as seignorage. This is often viewed as a last resort, as it tends to be met by sever inflation as printing money quickly devalues the currency. This has been seen in the past, for example when hyperinflation crippled the German economy as it printed money to pay its reparations. A Government can also fund expenditure now by raising debt. This enters into the budget constraint as a deficit, and must be paid off in a future period plus some interest.

In previous videos, I derive the intertemporal budget constraint for a two-period model of intertemporal choice. I shall derive this for more periods. Check out the playlist for intertemporal macroeconomics as a whole, linked at the end of this video.

We discuss the assumptions of the two-period model of intertemporal choice. This involves consumers living for 2 periods. They can consume, save or borrow in these time periods, allowing for consumption that differs from their income in that period. In order to defer income to other periods, they can buy or sell one-period bonds with interest r.

We can then mathematically write the budget constraint for each of these periods. With a bit of substitution and rearranging, this gives us the intertemporal budget constraint. This says that the present value of consumption is equal to the present value of income. The consumer can thus not spend more than she earns, but will spend all of her income since more consumption is always assumed to increase her utility.

In future videos we shall add this Government spending aspect to the intertemporal choice model.

Subscribe for more videos looking at games of chance, tutorials, and everything to do with the industry. Put suggestions for video ideas in the comments section below and any feedback offered would be greatly appreciated.

My videos are intended for educational and entertainment purposes. I try to credit the relevant parties for any work that I refer to in my videos (for example, citing relevant academic papers). If you believe a video does not observe good academic practice, please do not hesitate to contact me by email at [email protected]