Fiscal Deficit

A fiscal deficit is when government spending is greater than government revenues. Even though the deficit is similar to debt, it’s a bit different. Debt is the overall accumulation of money owed, whereas a fiscal budget deficit is more like an annual status update saying “yep, we’re spending more than we’re making this year, guys.” A government’s debt is basically adding up all the yearly deficits.

You might think that a fiscal deficit is bad, in the same way that having a lot of personal debt is considered bad. Yet this isn’t necessarily the case, because it means you’re bringing in value to the people. Keynes (maybe you’ve heard of the man) actually believed a fiscal deficit was a good thing, particularly when a nation needs a little TLC from a recession. Others think that keeping a balanced budget is the better way to go.

How does a government run a deficit? With bonds it sells, printing currency (though this will cause inflation, so…), raising taxes, and cutting government spending.