Question

what is meant by revenue deficit? what are the implications of this deficit?​

Answer 1

When the revenue receipts are less than the revenue expenditures in the government budget, this shortfall of receipts is known as revenue deficit.

• High revenue deficit shows accumulated and recurring expenses of government such as expenses on defence, payment of interest, etc.

• The revenue deficit is managed by borrowing or disinvestment. Hence, high revenue deficit either increases government liability or reduction of government assets.

• High revenue deficit leads to inflationary situation in the economy, as high government expenditure increases the aggregate demand of the economy.

• High revenue deficit implies high future burden of loan and interest payments on the government.