What are the advantages of having government debt?

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brettd's profile pic

brettd | High School Teacher | (Level 2) Educator Emeritus

Posted on

I agree fully with the answer above, but on the chance that you mean what are the advantages of owning or investing in government debt, this usually means you are buying treasury bonds.  Foreign governments and wealthy individuals own most of America's national debt in this manner. 

But why would they buy these?  They are fairly low interest investments and take a long time to mature.  But the advantage for individuals is that they are very safe investments.  Our government has always made the interest payments on its debt, so there is virtually no risk to making this investment.  Also, countries like China and Saudi Arabia have a vested interest in making sure our economy and government are solvent and functional.

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

The major advantage of having government debt is that it allows the government to do more things than it otherwise could.  This is similar to how borrowing money to buy my house allows me to do more things.  If government uses its debt wisely (by investing), this is fine.

A second advantage is that it allows government to be flexible in fiscal policy.  If a government has no debt, it has no way to stimulate the economy during a recession.

If a government has no debt, it also cannot show that it is credit-worthy.  If it suddenly needs to borrow, it will have to pay high interest rates.

krishna-agrawala's profile pic

krishna-agrawala | College Teacher | (Level 3) Valedictorian

Posted on

Government debt refers to amount owed by government or any government agencies. The Government debt it self has no advantage for any country or the government as it only represents a liability. However the ability to borrow that is implicit in government debts enables a country and its government to adjust its actual level of spending below or above the level of money available from taxation and other resources. Thus in case of economic down turn the government can borrow money and spend more money to give a boost to the economy. The money thus borrowed can be repaid in periods of boom when the country may find it convenient or even preferable to cut down its spending below amount available through taxation.

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