Governmental External Debt Financing: General Insight

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Introduction

Government revenue is money received by a government. It is an important tool of the

fiscal policy of the government and is the opposite factor of government spending.

Revenues earned by the government are received from sources such as taxes levied on the

incomes and wealth accumulation of individuals and corporations and on the goods and

services produced, exported and imported from the country, non-taxable sources such as

government-owned corporations’ incomes, central bank revenue and capital receipts in the

form of external loans and debts from international financial institutions.

Governments across the world earn “public revenue” from the following main sources:

Tax revenue

Non-tax revenue

Capital Receipts

In this paper we will be non-tax governmental revenue and the dangers of governmental

external borrowing and how it affects the internal and external economy. we will also be

shedding light on reasons that influence governments to borrow abroad.

How Governments Generate Revenues

Governments obtain revenue mostly from taxes, but In 2006-07 (India related), the tax

revenue contributed about 81% of the total revenue receipts of the central government,

whereas non-tax revenue receipts contributed the remaining 19%. These non-tax revenue

sources are mainly fees, fines or penalties, surplus from public enterprises, special

assessment of betterment levy, grants and gifts and deficit Financing as follows:

1. Fees

Fees are another important source of revenue for the government. A fee is charged by

public authorities for rendering a service to the citizens. Unlike tax, there is no compulsion

involved in case of fees. The government provides certain services and charges certain fees

for them. For example, fees are charged for issuing of passports, driving licenses, etc.

2. Fines or Penalties

Fines or penalties are imposed as a form of punishment for breach of law or non

fulfillment or certain conditions or for failure to observe some regulations. Like taxes,

fines are compulsory payments without quid pro quo. But while taxes are generally

imposed to collect revenue, fines are imposed as a form of punishment or to prevent

people from breaking the law. They are not expected to be a major source of revenue to the

government.

3. Surplus from Public Enterprises

The Government also gets revenue by way of surplus from public enterprises. In India, the

Government has set up several public sector enterprises to provide public goods and

services. Some of the public sector enterprises do make a good amount of profits. The

profits or dividends which the government gets can be utilized for public expenditure.