At the end of George W. And the costs accrued during the to presidential term of Barack Obama pushed the deficit up further. According to the Congressional Budget Office, "At the end of , the amount of debt held by the public was equal to 78 percent of gross domestic product GDP. Budget deficits, reflected as a percentage of GDP, may decrease in times of economic prosperity, as increased tax revenue, lower unemployment rates, and increased economic growth reduce the need for government-funded programs such as unemployment insurance and Head Start.
International Monetary Fund. Accessed August 8, Federal Reserve Bank of St. Brown University. Congressional Research Service.
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Popular Courses. Part Of. Especially for a government, managing a healthy budget may prove to be a challenging task. This article takes a closer look at Budget Deficits and Fiscal Deficits and will highlight the differences and similarities between the two.
There are a number of types of budget deficits that include revenue deficits, fiscal deficits and primary deficits. The solution to a budget deficit for a government would be to increase taxes, find new avenues for revenue and reduce government spending. A fiscal deficit is a type of budget deficit and occurs when the income for the year is insufficient to cover the expenses incurred.
On the contrary, it is detrimental for the economy if it is used just to cover revenue deficit. Primary deficit is defined as fiscal deficit of current year minus interest payments on previous borrowings. In other words whereas fiscal deficit indicates borrowing requirement inclusive of interest payment, primary deficit indicates borrowing requirement exclusive of interest payment i.
We have seen that borrowing requirement of the government includes not only accumulated debt, but also interest payment on debt.
It shows how much government borrowing is going to meet expenses other than Interest payments. Thus, zero primary deficits means that government has to resort to borrowing only to make interest payments. To know the amount of borrowing on account of current expenditure over revenue, we need to calculate primary deficit. Thus, primary deficit is equal to fiscal deficit less interest payments.
Fiscal deficit reflects the borrowing requirements of the government for financing the expenditure inclusive of interest payments. As against it, primary deficit shows the borrowing requirements of the government including interest payment for meeting expenditure.
Thus, if primary deficit is zero, then fiscal deficit is equal to interest payment. Then it is not adding to the existing loan. Thus, primary deficit is a narrower concept and a part of fiscal deficit because the latter also includes interest payment.
It is generally used as a basic measure of fiscal irresponsibility. The difference between fiscal deficit and primary deficit reflects the amount of interest payments on public debt incurred in the past.
Thus, a lower or zero primary deficits means that while its interest commitments on earlier loans have forced the government to borrow, it has realised the need to tighten its belt. Article Shared by.
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