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| *Loan,banking and credit>>>tax year |
The government of a remote country collects $500B/year in taxes? |
Government officials steal $600B/year. The deficit is refinaced at rate 10%/year. The banks are willing to lend the money as long as tax revenues remain sufficient to at least repay the interest. After how many years will the govermnet declare bancruptcy? I think it's about 17 years (could be 18 depending on how you treat the boundary conditions) Of course, I am assuming definition of bankruptcy is when interest payment is more than $500b/year. JohnVs Answer does not take into consideration that every year, the deficit you accumulate is $100b + the interest payment for that year. So, default happens quicker than the 19 years he suggested. Source(s): I suggest you layout cash in and cash out in an excel sheet to see the flow of money every year. An additional deficit of $100B is generated each year. At 10% p.a. this accumulates to -100*[(1.1)^n -1]/.1, or -1000 *(1.1^n) + 1000. Once this reaches $-5000B bankrupcy occurs: -5000 = -1000*(1.1^n) + 1000, or -6 = -1(1.1^n) or 1.1^n = 6, and n ln(1.10, so n =ln(6)/ln(1.1) = 18.8. Gov't will declare bankruptcy in year 19. |
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