What impact do large government deficits have on a country’s interest rates and economic growth rate?

The impact of fiscal deficit on economic development and national interests is an important issue in the academic circles and decision-makers, and also is a hotly debated topic. The complexity of economic structure, differences of development stages, and uniqueness of the research perspective made the conclusion of the research on the macroeconomic effects of the fiscal deficit rich and varied. So far, the related research is generally believed that short-term and moderate fiscal deficit is the comprehensive result of cyclical macroeconomic fluctuations and ‘automatic stability’ fiscal policy, which has no fundamental effect on a country’s economic growth and national interests. However, under certain conditions, the continued accumulation of high fiscal deficit will cause serious damage to a country's economic growth and national interests through the following three channels. Firstly, If the high fiscal deficit leads to excessive government borrowing, it will trigger a financial and economic crisis, which will become a serious threat to a country’s political economic security and national interests; Secondly, If the continued accumulation of high fiscal deficit leads to a substantial increase of money supply, it will ultimately cause the hyperinflation, which will seriously damage a country’s economic growth and national interests; Finally, the long-term accumulation of fiscal deficit will lead to long-term trade deficit, resulting in the loss of domestic capital, output and employment shrinking, which will adversely affect the country’s economic growth. Nowadays, China is in the critical period of structural transformation, and the demand of government fiscal expenditure is increased greatly, which will increase the likelihood of fiscal deficit significantly. Chinese government should deal with the contradiction between the increase in the fiscal deficit caused by the increase of short-term fiscal expenditure and the economic growth in the long run, and valuate the economic effects of the fiscal deficit in order to make scientific, reasonable and effective fiscal decisions.