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Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Fiscal Deficit

What it is:

Fiscal deficits occur when a government's expenditures exceed its revenue.

How it works (Example):

A deficit is the opposite of a surplus. In the business world, the term often refers to situations where expenses exceed revenues, imports exceed exports, or liabilities exceed assets.

The most common deficits are fiscal deficits and trade deficits. Trade deficits (also called current account deficits) occur when a country imports more than it exports.

Why it Matters:

Deficits are controversial. Economist John Maynard Keynes argued that fiscal deficits stimulated economies by giving governments the money to purchase goods and services and were thus particularly useful for getting countries out of recessions. However, many scholars argue that governments should not incur fiscal or trade deficits regularly because the mountain of debt they create makes for unsustainable economies in the long run.