Deficit Spending

Written By
Paul Tracy
Updated November 4, 2020

What is Deficit Spending?

Deficit spending is spending that reduces or offsets a surplus. In the business world, the term often refers to situations where expenses exceed revenues, imports exceed exports, or liabilities exceed assets.

How Deficit Spending Works

Deficit spending creates fiscal deficits and trade deficits. Fiscal deficits occur when a government's expenditures exceed its revenue. A government usually borrows money (by issuing Treasury securities or similar instruments) to fill the gap or "fund the deficit." Trade deficits (also called current account deficits) occur when a country imports more than it exports.

Why Deficit Spending is Important

Deficit spending is controversial. The famous economist John Maynard Keynes argued that it 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 also argue that governments should not engage in deficit spending regularly because the mountain of debt they create makes for unsustainable economies in the long run.

Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Deficit Spending.
Be the first to ask a question

If you have a question about Deficit Spending, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

If you have a question about Deficit Spending, then please ask Paul.

Ask a question Read more from Paul

Read this next

Paul Tracy - profile
Ask an Expert about Deficit Spending

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms