budget deficit

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An excess of government expenditure over government income, which must be financed either by borrowing or by printing money. Keynesians have advocated that governments should run budget deficits during recessions in order to stimulate aggregate demand. Monetarists and new classical macroeconomists, however, argue that budget deficits simply stimulate inflation and crowd out private investment. Most economists now agree that, at least on average, governments should seek a balanced budget and that persistent deficits should be eliminated, either by reducing expenditure or increasing taxation. In some cases a budget surplus can be used during a boom to collect more revenue than is being spent. In the UK the budget deficit is now officially known as the Public Sector Net Cash Requirement.

Subjects: Financial Institutions and Services.

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