What is the budget deficit?

The fiscal and financial policy of any state provides for a balance of all levels of the budget. The budget itself includes two parts, one of which indicates all income items, and the second - the costs. If the number of expenses exceeds the number of revenues, then this condition is called a budget deficit. However, the budget surplus can also be observed - the predominance of the revenue side over the expenditure side.

It should be said that the optimal option is, of course, a situation in which incomes and expenses are equal among themselves. After all, both the deficit and the budget surplus act as a deviation from the norm. However, it is very difficult to bring the income and expenditure of financial assets into balance. Therefore, I want to dwell on the prevalence of expenditures in more detail.

If there is a budget deficit in the country, first of all, the current expenditure budget is financed.

The budget deficit can be of several types:

1. Active - appears when the direct excess of spending over revenue receipts.

2. Passive - occurs as a consequence of lowering tax rates and reducing the revenue side (it is not associated with increased costs).

3. The structural budget deficit appears when the state is going to increase it consciously. In order to stimulate economic activity and aggregate demand during the downturn , the government can reduce taxes or make special decisions to increase employment (for example, funding for job creation).

4. Tsiklichsky - practically does not depend on the fiscal policy of the state. It is characterized by a general decline in production that occurs at the stage of the crisis and is the result of the cyclical development of the economy.

5. Short-term - is due to the prevalence of expenses over income within one fiscal year. It reflects the current changes in the general state of the country's economy, which were not taken into account when drafting the budget. Among the reasons for its occurrence, most often noted:

• The experience of macroeconomic forecasting by the authorities is insufficient.
• Poor consideration of possible changes in some circumstances: a drop in export prices, a reduction in output, a possible decline in demand for manufactured products, a decrease in its competitiveness, and a sharp increase in government spending associated with inflation.

6. Long-term - represents an increase in the budget gap over several years between income and expenditure. Its occurrence is due to causes that are stable. In most countries this is:

• Increase the social burden on the budget.
• Undesirable demographic situation of the country, which is associated with the aging of the population.
• Changes in tax legislation related to its liberalization.
• Increase in the country's external debt .
• Artificial understatement of prices (through the introduction of temporary or additional taxes, the sale of state assets, deferred payment of salaries to employees of state organizations).
• Amount unaccounted for in the public sector of the economy.
• High rates of inflation.

7. Real budget deficit is the difference between the nominal deficit and the percentage of public debt, which is multiplied by the rate of inflation.

8. Operating - total budget deficit, net of interest payments to the inflationary part.

In any state, the main strategic goal is to achieve a balanced budget, but in spite of this, sometimes a budget deficit can act as an important tool in economic policy in macroeconomic regulation. That is why its competent use allows the state to solve a number of economic and social problems. The main thing is that the deficit should not be long.