Question

1. What makes almost all government politicians everywhere in the world continue to spend more than is collected in taxes?  

2. Why would a government continue to borrow if it knew it could never pay back all of the loans, including interest.  

3. Borrowing requires people to loan the money to the government (by buying government bonds). So why would international bond buyers be willing to purchase government bonds from Greece, Spain, Portugal, and Italy when there appears to be some risk that those governments will not be able to pay back those loans?

Answer 1

1 )

• Now government is not acting like police state, government acting like welfare state. Thus, government tends to overspend. Taxes are not imposed severely to promote welfare.
• Further, most of government are democratic countries, take populous measures to win support of public.

2 )

• Government keeps on shifting responsibilities to next government.
• Further, governments are motivated by elections supports.
• Government might get external support in case of financial crisis.

3)

• These countries are not individuals, and lots of mediums are available to payoff the debt by the government.
• These countries can borrow from IMF, other financial institutions.
• Further, it is cheaper to make investment in these countries.