Fiscal Deficit occurs when state expenditure exceeds its income.
Fiscal deficit in practice: Fiscal deficits has become a global problem across a number of states and countries in the last 15 years. Fiscal deficits (if not only short-term) are due to unrealistic election promises of higher government spending on public services (especially social services, health care, etc.) and too generous economic policy of the state. How do states address their fiscal deficits? There are different ways, depending on what the economic situation they are in and what economic approach is chosen by their political leaders or their central bank:
- Indebtedness of the state (e.g. in the form of government bonds)
- Increasing taxes
- Reduction of fiscal expenditures
- Recovery of the national economy (leading to higher tax collection)
There is a number of economic theories that are built for or against structural fiscal deficits and their impact on inflation and well-being of citizens (e.g. Keynesianism). The opposite of the budget deficit is a budget surplus. Balanced income and expenditure of public finances is called a balanced budget.
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