This revenue falls as soon as people reduce their money holdings in response to higher inflation. It depends Findings . If financial markets are not repressed, higher deficits financed by domestic debt raise domestic real interest rates when external financing is not available. The story is different when the government represses financial markets through domestic interest rate controls, compulsory public debt placements, and controls on external capital flows. China and Zimbabwe maintain nominal interest rate controls on bank deposits that result in negative real rates.
Credit simply dries up for the private borrower.
Only a little Findings . Increased public saving can reduce real interest rates, but there is no evidence for the popular notion that lower real interest rates reduce the flow of private saving. The empirical evidence shows that when fiscal stabilization boosts public saving, the private sector reduces its saving by only a fraction of the increase. Fiscal adjustment will not be offset by lower private saving. So, raising public saving will increase national saving and the resources for domestic investment.