Definition of fiscal deficit

Citizens pay taxes so that the state collects money and thus pay for a whole series of infrastructures and services: health, education, salaries of officials, roads and a long etcetera. The state has an organism destined to collect money from the citizens (in Spain it is the Tax Agency and popularly it is called hacienda).

There are all kinds of taxes. Some increase the value of the products, some are related to the activity labor and there are different types of fees. They are variants of the same idea: taxes. Nobody likes to pay them, but it is a obligation citizen and not doing so has economic sanctions.

The fiscal deficit occurs when state expenditures are higher than income obtained through taxes. The fiscal deficit refers to a specified period, normally a year.

The rulers of a community (town, city or country) make economic budgets to organize the activity of all their institutions. The budget is a rough estimate of what is likely to happen. The income to be obtained is calculated and, in parallel, the money (budget items) is distributed for certain purposes.

The budget is an estimate and sometimes the calculations are wrong because the economic activity it has ups and downs and unpredictable aspects. Consequently, there is a fiscal deficit if what was initially intended to be collected is not achieved and, therefore, the level of expenditures is greater than the income.

There is a fiscal deficit if the balance between income and expenses is negative, that is, the collection is not enough to cover expenses. And there is no fiscal deficit if the income obtained exceeds the public expenditure obligations that must be satisfied.

The fiscal deficit is a relevant data in the economy from a country. The fiscal deficit is a problem in several senses. On the one hand, it causes a debt and this must be solved with a debt issue that, in turn, generates interest. In addition, the fiscal deficit implies that the taxes paid by citizens are not enough to maintain the institutions of the State. Consequently, the fiscal deficit may lead to an increase in the level of taxes, since with these, theoretically more income is collected. The problem is that more taxes does not necessarily mean that more money is raised. Among economists there are discussions about what is the acceptable fiscal deficit.

One of the problems related to this economic parameter is tax fraud, the money that the state does not collect because a part of the economic activity is not legal and is not declared to tax authorities. The greater the fraud, the greater the deficit.