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.
