Reducing debt and stimulating the economy are common goals of most governments in developed economies but achieving these objectives often involves tactics that appear to be mutually exclusive and sometimes contradictory. Individuals and economists commonly debate strategies to reduce the national debt.
Key Takeaways
- Tax hikes alone are rarely enough to stimulate the economy and pay down the national debt.
- Governments often issue debt in the form of bonds to raise money.
- Spending cuts and tax hikes have combined to help lower the deficit.
- Bailouts and debt defaults have disadvantages but they can help a government solve a debt problem.
Ways That Governments Reduce Federal Debt
1. Bonds
Using Debt to Pay Debt
Governments issue bonds to borrow money and avoid raising taxes. This helps pay expenditures and stimulate the economy through public spending. The government must pay interest to its creditors with debt issues.
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