| Definition |
Occurs when government expenditures exceed its revenues in a fiscal year. |
Occurs when government revenues exceed its expenditures in a fiscal year. |
| Fiscal Condition |
Indicates the government is spending more than it earns. |
Indicates the government is earning more than it spends. |
| Impact on Economy |
Can stimulate economic growth in short term, especially during downturns. |
Can lead to reduced inflationary pressure and increased national savings. |
| Financing Method |
Financed through borrowing, usually by issuing government bonds. |
Excess funds may be used to pay off debt or saved for future use. |
| Debt Impact |
Increases national debt over time if persistent. |
Reduces national debt or creates a reserve fund. |
| Investor Perception |
May raise concerns about fiscal discipline and long-term sustainability. |
Viewed positively as a sign of strong fiscal management. |
| Policy Examples |
Common during wars, recessions, or stimulus programs. |
May occur during economic booms or under conservative fiscal policy. |
| Effect on Interest Rates |
Can increase interest rates due to higher government borrowing. |
May lower interest rates by reducing demand for loans. |
| Inflationary Impact |
Can be inflationary if demand exceeds supply. |
Tends to be deflationary or neutral, depending on spending cuts. |
| Public Services |
May allow expansion of welfare and infrastructure spending. |
May lead to spending cuts unless surplus is intentional. |
| Tax Policy |
May necessitate future tax hikes to reduce debt. |
May enable tax cuts or rebates to citizens. |
| Budgetary Goals |
Often targeted for reduction via fiscal reforms or spending caps. |
May be targeted as a buffer for future deficits or downturns. |
| Examples |
U.S. during COVID-19 (2020), India during economic stimulus periods. |
U.S. during late 1990s, Germany with “black zero” policy (Schwarze Null). |
| Political Sensitivity |
Highly debated in elections and policymaking. |
Often used to justify tax reforms or increased public savings. |
| Multiplier Effect |
High, as government spending boosts demand. |
Low, especially if surplus results from spending cuts or high taxes. |
| Monetary Policy Interaction |
May pressure central banks to tighten monetary policy. |
Gives central banks more room to maintain accommodative stance. |
| Public Perception |
May be viewed negatively due to rising debt concerns. |
Often viewed positively as a sign of economic strength. |
| Accounting Equation |
Total Revenue < Total Expenditure. |
Total Revenue > Total Expenditure. |
| Long-term Sustainability |
Unsustainable if continued without corrective measures. |
Sustainable and strengthens financial resilience. |
Budget Deficit vs Budget Surplus