Definition
For the federal government, the deficit is the amount by which annual outlays exceed receipts.
Political Dictionary
Budget Deficit
A budget deficit occurs when government spending exceeds revenue during a period.
Why It Matters
Deficits add to borrowing needs and, over time, to public debt.
How It Works
The government finances the gap by issuing debt.
History
Deficits have occurred during wars, recessions, tax reductions, spending expansions, and demographic change.
Example
If revenue is $4 trillion and spending is $5 trillion, the deficit is $1 trillion.
Common Misconceptions
- A deficit is the same as total debt.
- All deficits are caused by one program.
- A government must immediately default when it runs a deficit.
Related Terms
- Fiscal Policy
- Monetary Policy
- Inflation
- Economic Growth
- Government Spending
Related Topics
See Also