Primary Deficit, Total Deficit, and Debt
The meaning of "deficit" differs from that of "debt", which is an accumulation of yearly deficits. Deficits occur when a government's expenditures exceed the revenue that it generates. The deficit can be measured with or without including the interest payments on the debt as expenditures.
The primary deficit is defined as the difference between current government spending on goods and services and total current revenue from all types of taxes net of transfer payments. The total deficit (which is often called the fiscal deficit or just the 'deficit') is the primary deficit plus interest payments on the debt.
Therefore, if is a timeframe, is government spending and is tax revenue for the respective timeframe, then the primary deficit is
If is last year's debt, and is the interest rate, then the total deficit is
Finally, this year's debt can be calculated from last year's debt and this year's total deficit, as follows:
Economic trends can influence the growth or shrinkage of fiscal deficits in several ways. Increased levels of economic activity generally lead to higher tax revenues, while government expenditures often increase during economic downturns because of higher outlays for social insurance programs such as unemployment benefits. Changes in tax rates, tax enforcement policies, levels of social benefits, and other government policy decisions can also have major effects on public debt. For some countries, such as Norway, Russia, and members of the Organization of Petroleum Exporting Countries (OPEC), oil and gas receipts play a major role in public finances.
Inflation reduces the real value of accumulated debt. If investors anticipate future inflation, however, they will demand higher interest rates on government debt, making public borrowing more expensive.
Read more about this topic: Government Budget Balance
Famous quotes containing the words primary, total and/or debt:
“Wilful sterility is, from the standpoint of the nation, from the standpoint of the human race, the one sin for which the penalty is national death, race death; a sin for which there is no atonement.... No man, no woman, can shirk the primary duties of life, whether for love of ease and pleasure, or for any other cause, and retain his or her self-respect.”
—Theodore Roosevelt (1858–1919)
“Both the man of science and the man of art live always at the edge of mystery, surrounded by it. Both, as a measure of their creation, have always had to do with the harmonization of what is new with what is familiar, with the balance between novelty and synthesis, with the struggle to make partial order in total chaos.... This cannot be an easy life.”
—J. Robert Oppenheimer (1904–1967)
“The debt was the most sacred obligation incurred during the war. It was by no means the largest in amount. We do not haggle with those who lent us money. We should not with those who gave health and blood and life. If doors are opened to fraud, contrive to close them. But don’t deny the obligation, or scold at its performance.”
—Rutherford Birchard Hayes (1822–1893)