In government, the practice of spending more money than is received as revenue, the difference being made up by borrowing or minting new funds. The term usually refers to a conscious attempt to stimulate the economy by lowering tax rates or increasing government expenditures. Critics of deficit financing regularly denounce it as an example of shortsighted government policy. Advocates argue that it can be used successfully in response to a recession or depression, proposing that the ideal of an annually balanced budget should give way to that of a budget balanced over the span of a business cycle. Seealso John Maynard Keynes; national debt.
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While originally used to refer to the fiscal vulnerabilities faced by fragile and post conflict states in establishing sustainable national security systems, the concept of right-financing is premised on the importance of adopting sound public finance management and public and private investment principles in support of overall economic effectiveness, efficiency and fiscal sustainability. Right-financing is therefore essentially about determining an acceptable supply of financing for government and private sector entities as they look to deliver higher-quality and more equitable services over time. Establishing the right policy, institutional, financing, debt and loan, revenue, fiscal, monetary and security decisions early on in the investment phase is therefore essential to establishing an effective economic growth policy, institutional and risk management framework.
The right-financing can be extended to guide public and private corporations in raising funds in capital markets (both equity and debt) and in strengthening strategic investment advice with regard to mergers, acquisitions and other types of financial transactions. To this end, the concept of right-financing “ supports the determination of sustainable economic policies, strategies, financial institutions and market delivery capacities that balance governance and accountability, service quality and fiscal sustainability concerns with regard to both public and private investments”. The right-financing approach takes into consideration the political economy of change and its implication for the investment climate; the processes of production, the acts of buying and selling, and their relationships to law, markets, customs and government.
For more on right-financing follow the external links to the OECD and World Bank.