Deficit Budget

Advantages, disadvantages & analyzing

Its relevance for economic growth.
 Definition
• Budget - is the statement of all income and
expenditure of any country, organization or
individual in a specific period.
• Types:
Deficit Budget - If expenditure is more than
income
Surplus Budget- When income is more than
expenditures
 Why Deficit Financing ?
• It was found that all [person, organizations & countries]
plan their expenditures as per their total income inflow
…
• Each nation Should plan to spend more than its income
for capital formation
As per Prof. Schumpeter [An Economists cum Noble
laureate in economics] Deficit financing has positive
multiplier effect to growth rate of the nation. { this is
Deficit Financing}. In limited proportion of budget size.
• If deficit budget is limited [2 to 5% of Budget size] it will
improve economic health of the nation.
 Advantages of Deficit Finance
• Due to increased capital formation, growth
rate of nation is accelerated.
• Due to increased public expenditure – more
production/ consumption takes place.
• Unemployment rate is reduced.
• The wage rate etc. tend to improve.
 Disadvantages of Deficit Finance
• Public expenditures should be mostly investment
expenditures & not consumption expenditures.
• All government want to be praised & applauded
by its citizens.
• Consumption expenditures gathers short term
applaud. This increases the public sentiments for
short term. Greece felt financial melt down due
to expenditures incurred due to public demand.