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What is a Fiscal Deficit?

Fiscal deficits occur when a government's expenditures exceed its revenue.

How Does a Fiscal Deficit Work?

A deficit is the opposite of a surplus. In the business world, the term often refers to situations where expenses exceed revenues, imports exceed exports, or liabilities exceed assets.

The most common deficits are fiscal deficits and trade deficits. Trade deficits (also called current account deficits) occur when a country imports more than it exports.

Why Does a Fiscal Deficit Matter?

Deficits are controversial. Economist John Maynard Keynes argued that fiscal deficits stimulated economies by giving governments the money to purchase goods and services and were thus particularly useful for getting countries out of recessions. However, many scholars argue that governments should not incur fiscal or trade deficits regularly because the mountain of debt they create makes for unsustainable economies in the long run.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.