Budget Deficit

What is Budget Deficit?

Budget Deficit is when a government or other entity spends more money than it receives in revenue, resulting in a negative financial balance. This imbalance can be created by rising expenses due to the costs of public services, infrastructure and social programs, as well as lower tax revenues due to economic recession or other factors.

Types of Budget Deficit

Budget deficit can be categorized into three primary types: Revenue deficit, Fiscal deficit, and Primary deficit.

Revenue deficit occurs when the government’s current income from taxes or other sources is insufficient to meet its expenditure obligations.

Fiscal deficit is a more comprehensive measure of a government’s financial health because it combines revenue deficit with borrowing used to fund projects and investments. It represents the excess of total expenditure over total receipts in any given financial year and shows how much money has been borrowed to cover spending needs.

Primary deficit takes into account all levels of government spending (federal, state/provincial, local) except for debt service costs associated with borrowing for long-term investments.

Causes of Budget Deficit

Budget deficit can be caused by a variety of factors and often occurs when the government is spending more money than it is collecting in revenue. Some of the most common causes of budget deficits include economic downturns, increases in public sector spending, tax cuts or exemptions that reduce government revenues, and governmental mismanagement.