Economics » Public Finance » Public Expenditure and Government Budgets

Government Budget

A national budget is a document containing estimates of expected government revenue and intended expenditure for the coming year. It usually consists of the review of the performance of the immediate preceding budget, objectives of the present budget, revenue projection, estimates of current and capital expenditures as well as policy measures to promote the achievement of the stated objectives.

Types of Budget

  • Surplus Budget: A surplus budget occurs when the government revenue is planned to exceed the proposed government expenditure. It can be achieved by reducing government expenditure or increasing taxation or both. A surplus budget is usually adopted to reduce inflationary pressures because it reduces aggregate effective demand in the economy.
  • Deficit Budget: A deficit budget occurs when the government revenue estimate is less than the proposed government expenditure. The fiscal deficit can be financed by raising loans from both internal and external sources. A deficit budget may be used to stimulate domestic production during economic recession or depression.
  • Balanced Budget: A government budget is balanced when its revenue estimate is equal to the proposed expenditure. It is also called neutral budget because it is usually adopted to keep the level of economic activities relatively stable as in the preceding year.

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