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Home National Debt and Income Determination Classification/Types/Categories of National Debt

 

Classification/Types/Categories of National Debt:

 

Hicks has grouped national debt into three main types/categories:

 

(i) Deadweight Debt.

 

(ii) Passive Debt.

 

(iii) Active Debt.

 

(i) Deadweight Debt:

 

Deadweight debt is one which is not covered by any real assets. In the words of Hicks:

 

"Deadweight it that which is incurred in consequence of expenditures which in no way increase the productive power of the community, yielding neither money revenue nor a future flow or utilities."

 

The loan raised during war period is a deadweight debt because for such debts no real assets exist to balance them.

 

(ii) Passive Debt:

 

Sometimes government raises loans for spending on such projects which neither yield money income nor help in raising the productivity of the country. They simply provide enjoyments to the citizens such as public parks, museums, public buildings etc.

 

(iii) Active Debt:

 

Active debt is one which is spent on those projects that directly help in yielding money income and increasing the productive power of the community.

 

J.L. Hanson has classified national debt into four main classes:

 

(i) Reproductive debt, (ii) Deadweight debt, (iii) Unfunded debt, and (iv) Funded debt.

 

(i) Reproductive Debt:

 

When a debt has assets to balance it, it is called reproductive debt. For instance, if a state barrows money for spending it on the construction of canals, railways, factories, etc., it is then able to repay the loan from these self liquidating projects.

 

(ii) Deadweight Debt:

 

A debt which is not covered by any real assets is called deadweight debt. Debt invested on war or prevention of war is a deadweight debt.

 

(iii) Funded Debt:

 

Funded debts are long term debts. The government continues paying the annual interest on such loans but makes no promise to pay the principal sum to the lender on any specified date, The examples of funded debts are long term government stocks, war loans etc.

 

(iv) Floating or Unfunded Debt:

 

Floating or unfunded debt comprises of short term bans. It is payable to the lender with interest on or before a fixed date.

Relevant Articles:

What is Federal Budget
What is National Debt
Classification/Types/Categories of National Debt
Short Term Loans
Long Term Loans
Methods of State Borrowing
Methods of Paying Public Debt
Burden of National Debt
National Debt and Economic Stability
 

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