Fiscal policy an example is Zimbabwe and Germany. The method is however inflationary. A fiscal deficit is often funded by issuing bonds, like treasury bills or consols and gilt-edged securities. These pay interest, either for a fixed period or indefinitely. If the interest and capital requirements are too large, a nation may default on its debts, usually to foreign creditors. Public debt or borrowing refers to the government borrowing from the public. A fiscal surplus is often saved for future use, and may be invested in either local currency or any financial instrument that may be traded later once resources are needed.
Fiscal capacity cannot improve fiscal capacity by simply raising taxes if it does not have a political, legal and fiscal history that has supported such state-power. In comparison to Besley and Persson's individual level study, Gordon and Li (2009) focus on the role of businesses and the financial sector in developed versus developing countries. They model businesses' participation in the financial sector—where Gordon and Li specifically refer to participation in the financial sector as using banks—as participation in the formal sector; they assume that tax authorities can monitor bank records, so that mass participation in the financial sector lends the state information