A balanced budget is a financial plan, particularly for governments, where revenues are equal to expenditures, resulting in neither a budget deficit nor a surplus. In a broader sense, a balanced budget may have no deficit but could potentially have a surplus. A cyclically balanced budget is one that is balanced over the economic cycle, running a surplus in prosperous periods and a deficit in lean times, with these offsetting over time.
Key Facts
- Definition: A balanced budget occurs when revenues are equal to or greater than total expenses.
- Budget Surplus: When revenues exceed expenses, there is a budget surplus. A surplus represents the difference between the two and can be reinvested, paid out to employees, or distributed to shareholders.
- Budget Deficit: A budget deficit occurs when expenses exceed revenues. Budget deficits result in rising debt as funds must be borrowed to meet expenses.
- Advantages of a Balanced Budget: Proponents argue that excessive budget deficits burden future generations with debt. A balanced budget helps maintain a balance between tax revenues and expenditures, reducing the risk of systemic economic issues.
- Disadvantages of a Balanced Budget: Running consistent budget surpluses may not be politically popular. Some economists argue that budget deficits can serve a valuable purpose, particularly during economic contractions, by providing fiscal stimulus and stimulating private sector spending.
- Cyclically Balanced Budget: A cyclically balanced budget is one that is balanced over the economic cycle, running a surplus in boom years and a deficit in lean years, with these offsetting over time.
- Modern Monetary Theory (MMT): MMT argues that a balanced budget is not required in the short term for countries with monetary sovereignty. MMT advocates for using budget deficits to achieve full employment and stimulate the economy.
- Political Views: In the United States, fiscal conservatism advocates for balanced budgets, while some argue that a balanced budget is no longer possible without massive spending reductions. In the United Kingdom, there have been limited instances of budget surpluses in recent years.
Budget Surplus
When revenues exceed expenses, there is a budget surplus. This surplus represents the difference between the two and can be reinvested, paid out to employees, or distributed to shareholders in the case of businesses. For governments, a budget surplus occurs when tax revenues in a calendar year exceed government expenditures.
Budget Deficit
A budget deficit occurs when expenses exceed revenues. Budget deficits result in rising debt as funds must be borrowed to meet expenses. For example, the U.S. national debt, which is in excess of $27 trillion as of November 2020, is the result of accumulated budget deficits over many decades.
Advantages of a Balanced Budget
Proponents of a balanced budget argue that excessive budget deficits burden future generations with debt. A balanced budget helps maintain a balance between tax revenues and expenditures, reducing the risk of systemic economic issues.
Disadvantages of a Balanced Budget
Running consistent budget surpluses may not be politically popular. Some economists argue that budget deficits can serve a valuable purpose, particularly during economic contractions, by providing fiscal stimulus and stimulating private sector spending.
Cyclically Balanced Budget
A cyclically balanced budget is one that is balanced over the economic cycle, running a surplus in boom years and a deficit in lean years, with these offsetting over time.
Modern Monetary Theory (MMT)
MMT argues that a balanced budget is not required in the short term for countries with monetary sovereignty. MMT advocates for using budget deficits to achieve full employment and stimulate the economy.
Political Views
In the United States, fiscal conservatism advocates for balanced budgets, while some argue that a balanced budget is no longer possible without massive spending reductions. In the United Kingdom, there have been limited instances of budget surpluses in recent years.
Conclusion
The concept of a balanced budget involves complex economic and political considerations. Different schools of thought and political ideologies have varying perspectives on the necessity and feasibility of balanced budgets, with ongoing debates and discussions shaping fiscal policies and economic outcomes.
References:
- Balanced Budget: Definition, Example of Uses, and How to Balance
- Balanced budget – Wikipedia
- Achieving a Structurally Balanced Budget
FAQs
What is a balanced budget?
A balanced budget occurs when revenues are equal to or greater than total expenses, resulting in neither a budget deficit nor a surplus.
What is a budget surplus?
A budget surplus occurs when revenues exceed expenses. This surplus represents the difference between the two and can be reinvested, paid out to employees, or distributed to shareholders.
What is a budget deficit?
A budget deficit occurs when expenses exceed revenues. Budget deficits result in rising debt as funds must be borrowed to meet expenses.
What are the advantages of a balanced budget?
Proponents of a balanced budget argue that excessive budget deficits burden future generations with debt. A balanced budget helps maintain a balance between tax revenues and expenditures, reducing the risk of systemic economic issues.
What are the disadvantages of a balanced budget?
Running consistent budget surpluses may not be politically popular. Some economists argue that budget deficits can serve a valuable purpose, particularly during economic contractions, by providing fiscal stimulus and stimulating private sector spending.
What is a cyclically balanced budget?
A cyclically balanced budget is one that is balanced over the economic cycle, running a surplus in boom years and a deficit in lean years, with these offsetting over time.
What is Modern Monetary Theory (MMT)?
MMT argues that a balanced budget is not required in the short term for countries with monetary sovereignty. MMT advocates for using budget deficits to achieve full employment and stimulate the economy.
What are the different political views on balanced budgets?
In the United States, fiscal conservatism advocates for balanced budgets, while some argue that a balanced budget is no longer possible without massive spending reductions. In the United Kingdom, there have been limited instances of budget surpluses in recent years.