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What is a crucial guideline for issuing debt related to a project's useful life?
What is a crucial guideline for issuing debt related to a project's useful life?
Which type of public debt is characterized by terms longer than 5 years?
Which type of public debt is characterized by terms longer than 5 years?
What is the effect of internal borrowing on national income?
What is the effect of internal borrowing on national income?
What categorizes debts based on how they are incurred?
What categorizes debts based on how they are incurred?
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Which instrument is typically used for short-term public debts?
Which instrument is typically used for short-term public debts?
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What is a defining characteristic of external borrowing?
What is a defining characteristic of external borrowing?
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Which type of debt is usually enforced during times of crisis?
Which type of debt is usually enforced during times of crisis?
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What is a major difference between redeemable and irredeemable long-term debts?
What is a major difference between redeemable and irredeemable long-term debts?
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What is one role of public debt in a government’s economic strategy?
What is one role of public debt in a government’s economic strategy?
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Which limitation of public debt is established through statutory regulations?
Which limitation of public debt is established through statutory regulations?
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Why might a government incur public debt?
Why might a government incur public debt?
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What is one of the effects of public debt on prices?
What is one of the effects of public debt on prices?
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What is the correct sequence of the stages of public debt?
What is the correct sequence of the stages of public debt?
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What purpose does public debt serve in terms of developing human capital?
What purpose does public debt serve in terms of developing human capital?
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Which type of debt is characterized by the ability to be redeemed for cash at a later date?
Which type of debt is characterized by the ability to be redeemed for cash at a later date?
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What is typically a primary reason for a government to seek public debt?
What is typically a primary reason for a government to seek public debt?
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How does public debt primarily affect income distribution?
How does public debt primarily affect income distribution?
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What is a potential positive effect of public debt on national savings and investments?
What is a potential positive effect of public debt on national savings and investments?
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What outcome can occur if public debt is used for infrastructure investments?
What outcome can occur if public debt is used for infrastructure investments?
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What is an important aspect of public debt management?
What is an important aspect of public debt management?
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What negative consequence may arise from external borrowing?
What negative consequence may arise from external borrowing?
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How does public debt incur costs to society?
How does public debt incur costs to society?
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Which of the following best describes the relationship between public debt and investments?
Which of the following best describes the relationship between public debt and investments?
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What principle should guide effective public debt management?
What principle should guide effective public debt management?
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What is the primary purpose of public borrowings?
What is the primary purpose of public borrowings?
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Which of the following best defines public debt?
Which of the following best defines public debt?
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During which period did public borrowing primarily emerge as a necessity according to historical analysis?
During which period did public borrowing primarily emerge as a necessity according to historical analysis?
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Who is credited with introducing the concept of public borrowing during the Great Depression?
Who is credited with introducing the concept of public borrowing during the Great Depression?
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What are the common sources of public debt for the Philippine government?
What are the common sources of public debt for the Philippine government?
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What is meant by 'deficit financing' as proposed by Keynes?
What is meant by 'deficit financing' as proposed by Keynes?
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What was a primary advantage highlighted by Adam Smith regarding government finance?
What was a primary advantage highlighted by Adam Smith regarding government finance?
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In the context of development finance, what is a key recommendation concerning borrowing?
In the context of development finance, what is a key recommendation concerning borrowing?
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What is the main role of the Department of Finance (DOF)?
What is the main role of the Department of Finance (DOF)?
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Who heads the Bureau of Internal Revenue (BIR)?
Who heads the Bureau of Internal Revenue (BIR)?
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Which of the following is NOT a tax collected by the Bureau of Internal Revenue?
Which of the following is NOT a tax collected by the Bureau of Internal Revenue?
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What agency is responsible for imposing tariff duties on articles imported from foreign countries?
What agency is responsible for imposing tariff duties on articles imported from foreign countries?
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Who assists the Secretary of the Department of Finance?
Who assists the Secretary of the Department of Finance?
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What responsibilities fall under the Bureau of Customs?
What responsibilities fall under the Bureau of Customs?
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Which agency is considered the premier agency for internal national taxation?
Which agency is considered the premier agency for internal national taxation?
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What is one of the significant roles of the Department of Finance?
What is one of the significant roles of the Department of Finance?
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Study Notes
Public Borrowings
- Public borrowing refers to the government's debt, obtained from domestic and foreign sources. It is used for funding budget deficits and managing economic fluctuations.
- Borrowing involves a transfer of purchasing power: the lender forgoes spending now in exchange for repayment later, while the borrower receives spending power now and repays later.
Origins of Public Borrowing
- Mercantilist Period (1500-1750): Characterized by merchant capital and emphasis on national wealth through trade. Adam Smith, a critic of mercantilism, advocated for balanced budgets.
- Keynesian Theory of Deficit Financing (Great Depression): John Maynard Keynes introduced the idea of public borrowing as a tool to stabilize the economy during economic downturns. He advocated for deficit financing and borrowing.
- Development of Finance: Foreign borrowing is often recommended for development financing due to the high cost and urgency of development projects.
Appropriate Debt Policy
- Debt Maturity: When a project's life is longer than the debt's maturity, the project costs are understated. When the debt period is longer than the project's life, the annual cost is overstated.
Classification of Public Debts
According to Maturity
- Short-term (floating debts): Debts with a maturity of up to 1 year, often through Treasury bills and bonds.
- Medium-term: Debts with a maturity of 1 to 5 years.
- Long-term: Debts with a maturity of over 5 years. These debts are classified as redeemable or irredeemable.
According to Sources
- Internal borrowing/debt: Borrowing from domestic sources. It does not impact national income directly.
- External borrowing/debt: Borrowing from foreign sources. It increases national income when obtained and decreases it when repaid.
As to Voluntary Basis
- Voluntary debts: Loans willingly taken by the state.
- Obligatory/Compulsory debts: Loans forced upon the state, often during times of war, disaster, or crises.
Role of Public Debt
- Smoothing out tax rates
- Macroeconomic Stabilization
- Financing war or emergency spending
- Funding development of human capital or increasing productivity
- Remunerative capital formation for government lending and investment
- Filling the savings-investment gap
Reasons for Public Debts
- Bridging the gap between government revenue and spending
- Funding development projects
- Financing foreign exchange costs for projects, conserving foreign reserves
Stages of Public Debts
- Borrowing funds
- Spending borrowed funds
- Raising revenue for repayment
- Actual debt payment
Limitations of Public Debts
- Statutory Limits: Legal limits on borrowing, based on the belief that a country cannot borrow beyond its repayment capacity.
- Normal Limit: Limited by the needs of the economy. The debt amount depends on the goals of economic stabilization, distribution, and allocation.
Effects of Public Debts
- Effect on Prices: Borrowing can create deflationary effects but can also lead to inflation by increasing total demand.
- Effect on Income Distribution: The effect depends on who bears the debt costs and who receives the benefits. It can lead to a transfer of wealth from lower-income to higher-income groups.
- Effect on Savings and Investments: Public borrowing can boost savings and investment, but it also comes at the cost of reduced private sector production.
- Effect on Economic Development: Public borrowing can stimulate economic growth, especially if it is used to fund infrastructure projects.
Public Debt Management
- The system by which the government administers its loans and handles debt payments.
- The goals of public debt management are to:
- Raise the required funding
- Achieve risk and cost objectives
- Meet other sovereign debt management goals
Major Revenue Agencies
-
Department of Finance (DOF): The principal fiscal and administrative arm of the government responsible for managing tax programs and borrowings.
- Bureaus include:
- Bureau of Internal Revenue (BIR)
- Bureau of Customs (BOC)
- Bureau of Treasury
- Securities and Exchange Commission (SEC)
- Bureaus include:
-
Bureau of Internal Revenue (BIR): Collects internal national taxes.
- Taxes collected:
- Income tax
- Estate and gift taxes
- Excise tax
- Business taxes
- Documentary stamp tax
- Mining taxes
- Taxes collected:
-
Bureau of Customs (BOC): Collects revenue, enforces laws, and provides public services related to international trade.
- Responsibilities include:
- Issuing entrance and exit clearance for vessels and aircraft
- Regulating import and export processes
- Overseeing warehousing, cargo transfer, postal clearance, and customs police operations
- Imposing tariffs on imported goods.
- Responsibilities include:
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Description
Explore the concept of public borrowing, its origins, and its significance in government financing. Learn about historical perspectives from the Mercantilist Period to Keynesian economics, and how borrowing impacts economic stability and development projects.
