What Causes Government borrowing?

Examine Factors that may cause an increase in the level of Government borrowing. (8)

mark scheme (4 + 4 Evaluation)

1. Expansionary Fiscal policy. When economic growth is low, the government may choose to increase spending and cut taxes to try and increase AD. This will cause a budget deficit, because spending is greater than taxes. This is likely to be a significant factor, especially if growth is low. When growth is low government borrowing will automatically be higher. (government have to spend more on benefits and receive less in tax). However, it is still possible to get a deficit during high growth because the government could increase its structural deficit. This has happened in the UK, due to higher spending on public services.
2. Government investment in public services. E.g. higher spending on education and training. This may lead to higher growth in the long term and therefore, government may be able to get higher taxes in the future. This kind of borrowing is structural and would explain borrowing even in a period of high growth

Budget Deficits