Balance Budget
A budget is said to be balanced when the anticipated receipts and proposed expenditure of the government are equal over a period.
According to Dalton, “A balanced budget is that, over a period of time, revenue does not fall short of expenditure.” In a balanced budget we do not find any surplus or deficit. The classical economists were the strong advocates of balanced budget. But now balanced budget has almost lost its significance.
Merits of Balanced Budget
(i) Effective Check and Balance
The balanced budget is an effective check and balance against the extravagant and unproductive expenditure of the government. It teaches the govt. to maintain fiscal discipline.
(ii) Economic Stability
The balanced budget helps the government in maintaining economic stability. The surplus budget has depressionary tendencies where as deficit budget may clear the way for inflation. But balanced budget avoids the evils of both.
(iii) Checks Public Debt
In case of balanced budget, the govt. does not have much scope to borrow. Since receipts are always equal to the expenditure, there is not much scope to borrow in case of balanced budget. The state would be free from debt burden.
(iv) Multiplier Effect
The multiplier effect of balanced budget helps the government to control mild dose of inflation and deflation. The classical view that balanced budget has neutral effect on income and employment of the economy is no longer believed. If a definite amount of govt. expenditure is increased and equal amount of tax is raised to finance the same, then increase in income due to increased govt. spending will be greater than the decrease in income due to increase. Thus if there is mild recession, balance budget may be sufficient to cure it automatically.
(v) Favorable to Developed Countries
The balanced budget is favorable to the developed countries of the West. They have already reached a high level of development. Their problem is to maintain economic development. Hence balanced budget is more applicable to those countries.
