What is Public Deficit?

Jessica Ellis

Public deficit, also known as government deficit, is the difference between revenues and expenditures over a given period of time. Public deficit is the opposite of public surplus, which occurs when a government takes in more money in revenues than it spends. Measuring public deficit is one way to get an idea of a country's fiscal health, though many other factors may contribute to this analysis. Reducing public deficit is a goal of most governments, and can be achieved both by increasing revenues and reducing expenditures.

Woman holding a book
Woman holding a book

Public deficit is distinct from public debt, though the terms are sometimes mistakenly used interchangeably. Public debt refers to all money and services owed by the government to internal and external organizations, including financial institutions and other governments, and through unpaid contracts. Deficit is debt in a more specific time frame; it refers to the difference revenues and expenditures over a specific period of time. A policy of deficit spending, or spending in excess of yearly revenues, can add to the total public debt over time.

In nearly every government, public deficit exists on a regular basis. Many government economies use a policy known as deficit spending, which allows expenditures even when revenues will not balance out the budget. Deficit spending usually involves the issuing of government bonds, which are offered to investors to raise revenues in order to help reduce the deficit. Other tactics for deficit spending involve borrowing money from other government funds, a complex issue that runs the serious risk of endangering some protected funding systems.

Running a country with a constant public deficit is nearly universal in the 21st century. In general, the need for deficit spending is compounded by the conflicting desires of the public to keep taxes low and services high. Since taxes make up the majority of government revenue, these opposing wishes create a political climate that makes it nearly impossible to avoid deficit spending. In an attempt to keep taxpayers happy, governments may create a deeper deficit by providing both lowered taxes and increased expenditures, but this strategy may drive a country closer to insolvency over the long term.

Though the management of the deficit is an important area of government, not all deficit rises occur as a result of government policy. If a country experiences a large recession and subsequent unemployment crisis, tax revenues may drop significantly, as people are making less money. Similarly, a boom in economic prosperity may lead to a reduced deficit, as taxpayers are pushed into higher tax brackets.

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