National and International Consequences of Budget Deficits

The budget deficit problem should be included into the sphere of the State real economic role. In this connection, it is necessary to emphasize relationships existing between the State involvement in the real sphere and effectiveness of its influence in the sphere of regulation. And although the nature of relationships between both spheres is multidimensional it may be assumed that a high budget dificit through exerting its negative influence on expectations of economic subjects increases their level of uncertainty and in this way it affects unfavourably effectiveness of the economic policy. Numerous misunderstandings in the debate on significance of budget deficits result from difficulties with their measurement them selves. It becomes necessary, on the one hand, to adjust real deficits by impact of inflation and take into account, on the other hand, the role of cyclical fluctuations. The theoretical debate on consequences of budget imbalance has been focussed in the last decade on the neo-Ricardian thesis about neutrality of budget deficit formulated by R. Barro in 1974. This thesis formulated from the viewpoint of the new classical economics and making allowances for assumptions about rational expectations of economic subjects is a focal point of the main controversial issues of the debate. Budget deficits are most certainlу linked with inflationary processes. Anyway, their interrelationship is bilateral and its essence has not been fully determined as yet. The impact of budget deficits on the level of interest rates deserves a special attention. Maintenance of high interest rates accompanied by the checking of inflationary processes is one of characteristic features of the economic situation in recent years. Budget deficits carry far-reaching implications also in their international dimension. Through interest rates they exert their influence on currency exchange rates and payments balances