Budget Deficit

A budget deficit occurs when a government, organization, or individual spends more money than it receives in revenue over a specific period, resulting in a shortfall that must be financed through borrowing or using reserves. For governments, budget deficits are typically financed by issuing debt, such as government bonds. Persistent budget deficits can lead to an accumulation of public debt, which may impact a country’s credit rating and economic stability.

Example

If a government has $1 trillion in revenue but $1.2 trillion in expenses in a fiscal year, it runs a budget deficit of $200 billion, which it may finance by issuing bonds.