The public deficit projects its effects on very diverse aspects of business life
Sometimes, the effects of public deficits on companies may be uncertain.
The public deficit has recently become a focus of interest. The debate is mainly about whether it is worth continuing to reduce the deficit or whether it is worth incurring slightly larger budgetary imbalances. In light of all this, the question of how the public deficit affects companies inevitably arises .
Unfortunately, the answer is not simple . The effects are very varied and while some may tend to become possible levers for business progress, others are potentially important threats to its future. Let's look at the main repercussions.
The possible loss of international competitiveness
One of the objectives of an increase in the public deficit is to stimulate demand in the country's economy. If this is achieved, it is likely that this will translate into an increase in prices , the intensity of which may vary.
Among the factors that stand out in the dimension of a possible inflationary effect is the impact on labour and on the prices of other types of supplies. It is likely that, in salary negotiations , many companies will have to face the fear of their workers of having a loss of purchasing power. In line with this expectation, and in order to maintain the real value of salaries, it is possible that it will be necessary to proceed to increase salary costs .
If there is the capacity to pass on this increase to prices , it might seem that the company is not suffering from excessive pressure. In real terms, it pays an amount that has a purchasing power similar to what it was paying. The problem is that, in other countries where there has been no inflationary push to demand, prices remain contained, which represents an advantage for the competitiveness of their companies compared to those of countries with larger deficits.
Furthermore, it should be noted that these inflationary life insurance email list phenomena may have a certain capacity to continue feeding themselves . For example, deficits produce inflation, which produces an increase in wage costs, which are passed on to the prices that all consumers and companies have to pay, thus fuelling inflation again.
The possible benefit of boosting private consumption
The dynamism of private consumption is important for many companies. It is especially so for those that sell goods or provide services directly to individuals . But it is also important for others whose clients are precisely companies closely linked to the final consumer. In any case, it is a sign of confidence in the near future of the economy that has beneficial effects for all companies.
However, there is a long debate among macroeconomists about the effects of deficits on private consumption. On the one hand, there are those who maintain that families spend based on the income they have available in that specific period. The deficit would allow for increased spending that would increase demand in the economy without having to pass it on to taxes that reduce the availability of family pockets to spend.
Another group of macroeconomists argues that household consumption is linked to long-term factors . Even though they have more room to spend as a result of the public deficit, they may hold back and perhaps prefer to save, especially because of the expectation that the deficit will be accompanied by tax increases in the future.
