What it is
Government expenditures include spending on public services, defense, social programs, and interest payments on the national debt. Revenues primarily come from taxes. When a deficit occurs, the government must borrow money to cover the shortfall, typically by issuing government securities like Treasury bonds. This borrowing adds to the national debt.
Persistent budget deficits can lead to an increase in the national debt, potentially raising long-term interest rates and crowding out private investment. Large deficits can also contribute to inflationary pressures if financed by printing money, or signal potential fiscal dominance over monetary policy. Investors track deficits to gauge a country's fiscal health.
Why it matters
Large or growing budget deficits can increase national debt, influence interest rates, and signal potential long-term economic challenges for a country.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice