Budget Deficit Definition

Published Dec 23, 2022

Definition of Budget Deficit

A budget deficit is defined as the difference between a government’s total spending and total revenue (i.e., excess spending). That means it is the amount of money a government has to borrow in order to cover its expenses.

Example

To illustrate this, let’s look at the budget of the United States in 2020. According to the Congressional Budget Office, the total spending of the US government in 2020 was USD 6.6 trillion. Meanwhile, the total revenue was only USD 3.5 trillion. As a result, the budget deficit of the US in 2020 was USD 3.1 trillion.

Why Budget Deficit Matters

Budget deficits are an important indicator of a government’s fiscal health. A budget deficit means that the government is spending more money than it is taking in. This can lead to an increase in public debt, which can have serious consequences for the economy. For example, it can lead to higher interest rates, inflation, and a decrease in economic growth.

On the other hand, budget deficits can also be beneficial in certain situations. For example, during a recession, a budget deficit can help stimulate the economy by increasing government spending. This can help create jobs and increase consumer spending, which can help the economy recover.

Disclaimer: This definition was written by Quickbot, our artificial intelligence model trained to answer basic questions about economics. While the bot provides adequate and factually correct explanations in most cases, additional fact-checking is required. Use at your own risk.