Budget Deficit

Loading the player...

What is a 'Budget Deficit'

A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer to government spending rather than business or individual spending. When referring to accrued federal government deficits, the term "national debt” is used.

The opposite of a budget deficit is a budget surplus, and when inflows equal outflows, the budget is said to be balanced.

BREAKING DOWN 'Budget Deficit'

In the early 20th century, few industrialized countries had large fiscal deficits. This changed during the First World War, a time in which governments borrowed heavily and depleted financial reserves. Industrialized countries reduced these deficits until the 1960s and 1970s despite years of steady economic growth.

Budget deficits as a percentage of GDP may decrease in times of economic prosperity, as increased tax revenue, lower unemployment and economic growth reduce the need for government programs such as unemployment insurance. If investors expect higher inflation rates, which would reduce the real value of debt, they are likely to require higher interest rates on future loans to governments.

Countries can counter budget deficits by promoting economic growth, reducing government spending and increasing taxes. By reducing onerous regulations and simplifying tax regimes, a country can improve business confidence, thereby prompting improved economic conditions while increasing treasury inflows from taxes. Reducing government expenditures, including on social programs and defense, and reforming entitlement programs, such as state pensions, can result in less borrowing.

RELATED TERMS
  1. Deficit

    The amount by which a resource falls short of a mark, most often ...
  2. Fiscal Deficit

    When a government's total expenditures exceed the revenue that ...
  3. Deficit Spending

    When a government's expenditures exceed its revenues, causing ...
  4. Budget

    An estimation of the revenue and expenses over a specified future ...
  5. Trade Deficit

    An economic measure of a negative balance of trade in which a ...
  6. Treasury Budget

    Data released by the U.S. Treasury on a monthly basis that accounts ...
Related Articles
  1. Economics

    How Budget Deficits Work

    How do governmental and business budget deficits function?
  2. Term

    What's a Deficit?

    A deficit is the amount by which expenses or costs exceed income or revenues.
  3. Economics

    Twin Deficits: Twice The Fun For The U.S

    The U.S. has been running both fiscal and current account deficits for years, but what does it all add up to?
  4. Economics

    The Pros & Cons of a Trade Deficit

    Is a trade deficit, also known as a current account deficit, beneficial or detrimental to a country's economy?
  5. Economics

    Fiscal Deficit

    A shortfall that occurs when government spending exceeds government revenues, or taxes.
  6. Personal Finance

    You Know Debt & Deficit Are Not The Same, Right?

    An educational article explaining in detail how deficit differs from debt and how are they related.
  7. Economics

    Current Account Deficit

    A current account deficit occurs when a country spends more money on the goods and services it imports than it receives for the goods and services it exports.
  8. Professionals

    Currency Appreciation and Depreciation

    CFA Level 1 - Foreign Exchange Parity Relations - Influences. Learn how budget deficits can lead to trade deficits and the various causes behind currency depreciation and appreciation.
  9. Economics

    The Top Reasons Behind The U.S. National Debt

    A budget deficit occurs when a government’s receipts fall short of its expenses. The government then issues securities to keep its programs running.
  10. Economics

    Explaining Budget Surplus

    Budget surplus is an economic term describing a situation where revenue exceeds expenditures.
RELATED FAQS
  1. Which countries run the largest budget deficits?

    Discover the countries with the largest budget deficits and what it means. Deficits are influenced by the economy and also ... Read Answer >>
  2. What is the effect of a fiscal deficit on the economy?

    Take a deeper look into the real impacts of government budget deficits on the economy, and why government financing reduces ... Read Answer >>
  3. Why would a company choose to operate on a deficit budget in lieu of a balanced budget?

    Learn how companies can strategically use deficit budgets in the short term to get off the ground, expand and work through ... Read Answer >>
  4. Who thinks fiscal deficits are a good idea?

    Find out why nearly all political actors support the concept of governments incurring fiscal deficits, either explicitly ... Read Answer >>
  5. What is the role of deficit spending in fiscal policy?

    Read about the role deficit spending can play in a government's fiscal policy, and learn why economists are torn about the ... Read Answer >>
  6. Which United States Presidents have run the largest budget deficits?

    Take a look at which presidents were in office for the largest budget deficits in U.S. history and how the responsibility ... Read Answer >>
Hot Definitions
  1. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  3. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center