Debt Consolidation

The burden of governmental debt refers to the sacrifice it will impose on the community through a rise in taxation, necessitated at the time of repayment, and for paying the annual interest on the loans. The concept of the burden of debt is an extremely vague term. However, a distinction is made between financial burden or primary burden, and real burden or secondary burden.

When a debt is incurred by the government, the level of taxation in the economy has to be increased in order to meet the int erest charges so long as the debt continues to exist. The consequent loss in the income of the people may be called as the financial burden of debt. The higher level of taxation caused by the rising debt may have some repercussions on the economy, in the form of adverse effects on the capacity and willingness to save. These effects may be called real burden or secondary burden of debt.

The concept of the burden of debt can be explained in terms of direct and indirect burdens of debt. A direct money b urden is measured by the extent of money payment involved and the rise in taxation needed. Direct real burden is equal to the loss of economic welfare, i.e., the sacrifice of goods and services made by the taxpayers on account of the direct money burden of increased taxation. Indirect burden of debt, however, refers to the extent of adverse effects of increased taxation on the level of production.

Again, the concept of burden is sometimes explained in terms of the notion of abstinence, or pain-cost d octrine and opportunity cost. When a loan is raised by the government, resources are transferred from private hands to the government, and those who contribute to government loans abstain from consuming current income and undergo the pain of abstinence, which may be called a burden caused by the incurring of public debt.