Definition of Budget Deficit

The concept of budget deficit is a term that is used in the field of economic management. Regarding its meaning, it indicates the situation in which the expenses that have been produced by an entity are higher than the income non-financial for a specified period, usually one year.

The idea of ​​a budget deficit is based on the fact that an economic budget that seeks to cover certain needs is altered by some reason. The budget is nothing more than an action plan of an entity, that is, the forecast of what is going to happen over a period of time. On the other hand, the concept of deficit refers to higher monetary expenditure in relation to income. Thus, the budget deficit indicates the difference between the anticipated income and the expenditures to be incurred. This term is applicable to a private entity, although its use is more common in relation to a public body, for example, to refer to the state as a whole. Sometimes other equivalent terms are used, such as fiscal deficit or public deficit.

The economic data provided by the budget deficit is not relevant by itself but rather its true meaning is acquired if said data is related to GDP, Domestic Product Stupid. Let's take a concrete example, the case of Spain. In 2014, the public deficit was 61,391 million euros, corresponding to 5.80% of GDP. The comparison between the public deficit and GDP highlights the true magnitude of the negative balance between revenues and expenditures.

Causes of the budget deficit in the state

One of the reasons for this situation is the increase in debt.

If there is a reduction in private activity, this causes a decrease in income and, consequently, a budget deficit is created.

When the imports made exceed the exports. This phenomenon is also known as balance of payments or balance of trade. There will be no budget deficit if more is exported than imported.

When the state has high public spending (salaries of public employees, benefits social expenses, health, health, pensions ...).

If tax collection is insufficient to meet anticipated expenses or if tax fraud explodes.

There's others factors that have a direct relationship with the budget deficit of a state: the inflation, the payment of interest on public debt or a high risk premium.