(A) Balanced budget:
- A budget in which the government plans its expenditures in such a way that all the expenditures can be fully made from the available sources of revenue is called a balanced budget.
- A balanced budget is an ideal as well as a theoretical situation. In reality a balanced budget is impractical.
Developing countries:
Developing countries need a lot of funds to develop their nations. Hence, the government of these nations cannot plan expenditures within given revenue constraints. So, such countries cannot have a balanced budget.
Developed countries:
The developed countries keep on increasing their expenditures on defence, research, technology, etc. so that they can maintain their growth rate and develop in newer directions. Hence, even developed countries do not have a balanced budget
(B) Merits of a balanced budget:
- A balanced budget ensures financial stability.
- The government avoids wasteful expenditures so that it can maintain the expenditure equal to income.
- The government does not need to impose additional taxes on the people to raise extra income to meet undue expenditures.
(C) Demerits of a balanced budget:
- Because the government aims at keeping the expenditure same as income, the economic growth and welfare of the nation may not take place properly.
- If government does not restrict expenditures and raises taxes in order to increase incomes to match the excess expenditures then people have to bear additional tax burdens.
Adam Smith favoured balanced budget. But J. M. Keynes was of a strong belief that in case of balanced budget, governments do not spend enough to maintain full employment. In other words in order to maintain full employment, governments must incur more expenditure in the economy if required and hence let go the concept of balanced budget.
