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Explain the Following: Productive Debt and Unproductive Debt - Economics

Explain the following:

Productive debt and unproductive debt

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Solution

Productive and unproductive debt:

A debt is called productive if the loan is financed for projects which bring revenue to the government; for example, irrigation and power projects. Productive debts are self-liquidating in nature; this means the principal amount and interest are normally paid out of the revenue generated from the projects for which the loans were used.
A debt is called unproductive if the loan is financed for war and other relief operations in case of emergencies. Unproductive public loans are a net burden on the community. The government will have to resort to additional taxation for their servicing and repayment.

Concept: Concept for Public Debt
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