3.6. Avoid Excessive Spending and Deficits

1. Put your phone in your bag!

PUT YOUR
PHONE IN
YOUR BAG!
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS

2. Shared Bill Problem

SHARED BILL
PROBLEM
A company leader
introduces a new rule:
When our team goes out,
we always split the bill
equally. This will increase
generosity, kindness, and
unity among colleagues.
To what extend do you
agree with them?

3.

Week #1: Foundations: Incentives & Trade-offs
Week #2: Margins & Gains from Trade
Week #3: Exchange & Transaction Costs
Week #4: Firms, Profits & Income
Week #5:Value, Wealth & Sources of Progress
Week #6: Market Forces & Unintended Effects
TOPIC OF THE WEEK:
Week #7: Institutions that Support Progress
Week #8: Midterm Exam [20 Oct – 24 Oct]
Week #9: Macro Stability & Policy
Week #10: Trade & Part 3
Week #11: Government’s Basic Roles
Week #12: Political Economy & Rules
Week #13: Government Support Programs
Week #14: Planning & Competition
Week #15: Final Exam [15 Dec – 19 Dec]

4. Avoid Excessive Spending and Deficits

AVOID EXCESSIVE
SPENDING AND DEFICITS
ELEMENT 3.6

5. Review

REVIEW
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS

6. Who Are Special Interests?

WHO ARE SPECIAL INTERESTS?
Small groups with large benefits at stake.
Example: UzAvto, UzAirways.
Public pays small, unnoticed costs.
Strong lobbying vs weak public opposition.

7. Why Politicians Listen

WHY POLITICIANS LISTEN
Special interests provide votes, money, mobilization.
Average voters barely notice technical policies.
Politicians gain by pleasing focused groups.
Special-interest effect favors narrow benefits.

8. Logrolling & Pork-Barrel

LOGROLLING & PORK-BARREL
Logrolling: vote trading.
Pork-barrel: bundling projects to pass them.
Inefficient projects pass when packaged.
District coalitions allow wasteful bills to succeed.

9. Limiting Special Interests

LIMITING SPECIAL INTERESTS
Need strict rules to change incentives.
Constitutional limits prevent narrow spending.
Transparency reduces voter ignorance.
Goal: align politics with broad welfare.

10. Examples of Rules

EXAMPLES OF RULES
Balanced budget requirements.
Line-item veto to cut waste.
One-issue-per-bill laws.
Aim: restrain targeted favors.

11. Avoid Excessive Spending and Deficits

AVOID EXCESSIVE
SPENDING AND DEFICITS
ELEMENT 3.6

12. Dilemma

DILEMMA
You are the Finance Minister.
The government wants to finance a $1 billion
logistics hub through an international debt or
local tax.
Which one you would choose if you were a
minister?
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS

13. Learning Objectives

Why politicians run deficits and build debt
LEARNING
OBJECTIVES
Shortsightedness effect: benefits now, costs
later
Common-pool problem in budgeting
Tools to restrain overspending

14. Shortsightedness Effect

Politicians favor immediate benefits
SHORTSIGHTEDNESS
EFFECT
Costs pushed to the future via
borrowing
Taxes are unpopular, debt is easier

15. Why Deficits Are Attractive

WHY DEFICITS ARE ATTRACTIVE
Deficit = spending above
revenue
Borrowing seems like a
free lunch
Short political horizon
encourages overspending

16. Consequences of Chronic Deficits

CONSEQUENCES OF CHRONIC DEFICITS
Debt leads to higher
taxes or inflation
Risk of debt crises
(e.g., Greece 2010)
Slows long-term
growth

17. The Common-Pool Problem

THE COMMON-POOL PROBLEM
Budget is a shared pool
Each politician pushes for local benefits
No strong incentive to restrain spending

18. Uzbekistan Dinner Analogy

UZBEKISTAN DINNER ANALOGY
150 deputies in Oliy Majlis share
the same budget pool
Each deputy pushes for a local
project because the cost is spread
across all taxpayers
When everyone adds “just one
more project,” the total national
budget expands far beyond control

19. Debt Growth - Uzbekistan

DEBT GROWTH - UZBEKISTAN
Countries with highest debt-to-GDP:
– Sudan ≈ 250%
– Japan ≈ 235%
– Singapore ≈ 175%
Uzbekistan’s current debt-to-GDP: ≈ 38%
– Projected to remain around mid-30% range
Kazakhstan comparison: ≈ 30%
– Lower than Uzbekistan, but both remain in a manageable zone

20. Watchdogs Often Fail

WATCHDOGS
OFTEN FAIL
Weak incentives
to restrain
spending
Voters rarely
reward fiscal
discipline
Political pressure
favors spending

21. Tools to Limit Overspending

TOOLS TO LIMIT OVERSPENDING
Balanced
budget rules
Spending caps
Line-item veto
• Government
must match
spending with
revenue each
year,
preventing
routine
deficits
• Limits on how
much total
expenditure
can grow, for
example “no
more than 5%
increase per
year”
• Executive can
remove
specific
wasteful items
from a budget
without
rejecting the
entire bill
Transparency
requirements
• All spending
items must be
publicly visible,
making it harder
to hide favors or
unnecessary
projects

22. Summary

SUMMARY
01
02
03
04
Politics favors
benefits now
and costs later
Commonpool forces
overspending
Chronic
deficits harm
long-term
stability
Fiscal rules
restore
discipline

23. Any questions?

ANY QUESTIONS?
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS

24. Thanks

THANKS
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS