Question

Economic forces can effect public budgeting in many ways. Discuss the following: How does an improving economy help public budgets? How does an economic slow down effect public budgets? Can a deteriorating economy actually be beneficial to a municipal government?

Answer 1

It helps increase revenue due to more people falling in higher tax brackets. Expenditure falls due to less spending on unemployment benefits etc. Slowdown reduces revenue due to less tax collection etc. On the other hand expenditure rises due to more spending on unemployment benefits etc. It can be beneficial in some ways E. G reducing cost of borrowing by making municipal bonds more attractive than corporate bonds. But in the longrun it is not good for municipal govt as it reduces financing capacity of economy