France’s Rising Budget Deficit and Debt

Michael Parkin

1 year ago

France’s government budget deficit is expected to exceed 6 per cent of GDP, driven by spending on military and green transition. Government debt is forecast to reach 115 per cent of GDP, and interest payments to 2.9 per cent next year. —Source: economist.com, December 7, 2024

Answer the following questions to check your understanding of the story.

Why does France have a government budget deficit?

France has a government budget deficit because __________.

a) tax revenue exceeds what the government spends

b) government transfer payments exceed government expenditure on goods and services

c) tax revenue is less than what the government spends

d) government interest payments are too large

Wrong! - When government outlays increase, how does the budget deficit change? What are government outlays?

That's Right! - The government has a budget deficit when its expenditure on goods and services plus transfer payments and debt interest exceeds its tax revenue.

How does a government budget deficit contribute to making the deficit even larger?

A government budget deficit ___________ the debt and ___________ interest payments on the debt which, in turn, makes the government budget deficit even ___________

a) increases, increases, larger

b) decreases, decreases, larger

c) increases, increases, smaller

d) decreases, decreases, smaller

Wrong! - How would borrowing to finance the government budget deficit change the government's debt? Would the interest payments on the debt change the government outlays and the budget deficit?

Well Done! - A government borrows to finance its budget deficit which increases the government's debt. With increased debt, interest payments rise and government outlays increase. Increased outlays increase the government budget deficit.

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