Benefits/merits/Advantages/positive effects of public borrowing over taxation
- Borrowing is more reliable than taxation. A country can be certain about fund to be raised from borrowing unlike from taxation, which is affected by tax avoidance and evasion
- With borrowing, unlike taxation, revenue is obtained as lump sum. This is because tax revenue especially in LDCs, come in small bits which can hardly do any constructive economic activities.
- Borrowing has limited direct burden than taxation. This is a better option of raising funds without inflicting citizens with heavy tax burden
- Borrowing from external sources increases aggregate demand. This stimulates production and fast economic growth and development.
- Borrowing is cheaper than taxation in terms cost administration. It is worth noting that at times the cost of tax administration outweigh the tax revenue collected especially in direct taxes
- Borrowing is a better way of raising foreign exchange than taxation. External borrowing is important because it avails LDCs with scares foreign exchange.
- Debt financing/borrowing is a quicker means of funding projects unlike taxation, which involves a number of processes. Taxation revenue tends to pass through tedious stages.
- Borrowing strengthens the political ties between the lending and borrowing countries. This is important for co-existence as opposed to taxation
- Internal borrowing can be used to fight against inflation by withdrawing funds from the circulation
- fills the saving investment gap
- promote industrial development
- increase utilization of redundant resources
- helps to settle debt
CATEGORIES Economics
TAGS Dr. Bbosa Science
