What is fiscal deficit

Fiscal deficit in finance refers to the difference between the government's total revenue and its total expenditure in a given fiscal year. It is an important indicator of a government's financial health and its ability to meet its financial obligations. When a government spends more money than it brings in through taxes and other sources of revenue, it creates a fiscal deficit. This deficit is typically funded by borrowing, either through the issuance of government bonds or by borrowing from international institutions or other governments. Fiscal deficits can have both short-term and long-term implications for an economy. In the short term, deficits can stimulate economic growth by increasing government spending, which can boost demand and create jobs. However, in the long term, sustained deficits can lead to higher levels of public debt and interest payments, which can crowd out private investment and lead to higher inflation and interest rates. Governments often use fiscal policy to manage deficits, either by increasing taxes, reducing spending, or a combination of both. However, these measures can be politically challenging and may have negative effects on economic growth. Overall, fiscal deficits are an important aspect of government finance and can have significant implications for the overall health of an economy. Governments must carefully manage their deficits to ensure they do not become unsustainable and lead to long-term economic problems.