CAPITAL BUDGETING - Research Paper Example

Moreover, it is a decision process that focuses on long-term investment for revenue and expenditure. My paper will be based on discussion of United State budgeting as a reference but the framework is applicable to the most part to any budgeting system whether national, state, or local, or whether it is in Europe or any other continent. Budgeting is done as a way of setting objectives and goals, for allocation of the resources essential to attain the objectives, for determining progress toward objectives, identifying inadequacies, and for controlling and integrating the diverse activities carried out by many sub-units within large bureaucracies both public and private (Rubin, 2004).

Debt capacity refers to the ability of the government to make required debt service payments and to be able to pay back debt incurred without ruining its reputation either to other states or individuals. Therefore,this section will deal with the speculative issues affecting state debt management and accounts on a state debt financing policies and debt limits. State debt management processes and practices are important factors in the preparation of capital budgeting in order to ensure that the government is able to equalize the level of debt and/or debt services relative to current revenue that an providing entity can support and undue budgetary constraints that can affect the ability of the government to repay the debt on time does not arise.

Therefore, when coming up with a capital budget, current expenditures are financed by current revenues while capital expenditures can be financed by borrowed funds. Debt financing is refunded by the cost of using public investments by the taxpayers on the “benefit received” principle. The government uses a portion of taxes paid by the taxpayers as a way to ensure future taxpayers bear their “fair share” as a way to pay the debt incurred to provide public facilities. Secondly, debt capacity is determined