What are revenue stump and deficit financing?Is there any relation between these two?

krishna-agrawala | Student

I have not come across the the term "revenue stump", and I was wondering if it just "revenue stamp" spelt wrongly.

Revenue stamp, also  known by names like tax stamp or fiscal stamp, is a means of collecting taxes. In this form of tax payment, a person pays required stamp by purchasing revenue stamps, issued by tax collecting authorities in different nominations, and affixes then on different documents such as receipts, agreements, and other documents. A similar form of collecting tax involves use of stamp papers of normal writing paper size instead of stamps. These stamp papers are also issued in different monetary denominations and have sufficient blank space left for recording details of agreements and other details of various documents. Such stamp are used as the paper for various legal documents requiring payment of taxes. Revenue stamps do not have much relation with deficit financing except that both have some relationship to government revenue.

Deficit financing refers to the means of bridging the gap between the excess of actual expenditure by a government over the revenue collected. The two means of deficit financing are printing paper currency and borrowing money. Some governments do not classify borrowings as deficit finance. For example, Government of India classifies funds obtained from these sources of funds under a separate head of "market borrowings".

Deficit financing becomes desirable and necessary under situation such as war and economic depression. Governments are also known to resort to deficit financing for accelerated economic development activities taken up by government.

Deficit financing can help in growth of an economy in several ways. Increased money supply resulting from printing of money helps to meet the increased need for liquidity in an expanding economy. Increased government spending using the deficit finance stimulates increased demand for consumer goods and in this way improves utilization of available capital resources in the economy and increases employment. It also stimulates long term economic development of the economy by developing infrastructure and other productive capacities with long gestation period. However, deficit financing, particularly by printing currency notes, puts an inflationary pressure on the economy.