Any time people or organizations spend more than they take in, the result is a deficit. The term “fiscal deficit” typically refers to a government with expenditures that exceed revenues and consequently runs a deficit. Governments usually make up the difference by issuing bonds to borrow money and finance the fiscal deficit.
Fiscal Deficit Implications
One effect of fiscal deficits is that they lead to growth in the public debt. The national debt, meaning the amount of money the United States federal government owes, is the accumulated total borrowing to finance fiscal deficits in past years. The pros and cons of fiscal deficits are a subject of debate. One view holds that fiscal deficits are bad policy and a balanced budget is better for the economy in the long run. A contrary view is that fiscal deficits can serve as a means of stimulating the economy. This Keynesian theory, named for economist John Maynard Keynes, argues that government deficit spending during an economic recession speeds economic recovery. During periods of economic growth, this view calls for eliminating fiscal deficits.