Fiscal Deficit vs Revenue Deficit: Difference and Comparison

Key Takeaways

1. Definition: Fiscal deficit is the excess of government expenditure over total revenue, while revenue deficit is the shortfall of revenue expenditure over revenue receipts.
2. Components: Fiscal deficit considers revenue and capital expenditures, reflecting the government’s overall borrowing requirement. Revenue deficit focuses solely on revenue expenditure, excluding capital receipts.
3. Significance: Fiscal deficit indicates the government’s reliance on borrowing, while a revenue deficit highlights the need to reduce borrowing for regular expenses and increase revenue generation. Both deficits have implications for public debt and fiscal policy.

What is Fiscal Deficit?

In a fiscal year, there are many expenses, income, receipts, and borrowings; the excess expenditure over the total expenditure is referred to as the fiscal deficit. The transactions and borrowings made by the government are focused.

The budgetary development is understood and clarified by using fiscal deficit. When a fiscal deficit occurs, we must understand that the government has spent more than the supposed amount.

A fiscal deficit is a measure to express the government’s financial operations. The non-debt resources and their overall shortfall throughout the financial year are considered to measure a fiscal deficit. 

While measuring fiscal deficit, borrowings are not considered, and the entire expenditure is considered receipts. Borrowings are not a part of government receipts, so they are not considered.

During a financial year, the borrowings and other financial needs of the government are reflected via fiscal deficit. This ensures harmonical financing of expenditure, including payments on which interest is levied.

A fiscal deficit mostly arises when there is extra spending by the government. The entire process also includes the government using additional financial resources per their requirement to meet the expenditure.

What is Revenue Deficit?

The revenue deficit is the excess revenue expenditure by the government over their revenue receipt. A revenue deficit provides coverage for transactions that impact the existing income and expenditure by the government.

To provide finance for a certain consumption sector, the government utilizes other sectors’ savings or revenue. As a result, they face a position of dissaving which is put to focus through a revenue deficit.

The government would raise funds to fulfill the consumption requirement and finance their unresolved or unfinanced investments. A revenue deficit insists the government reduce the expenditure to avoid the creation of debt stock and thereby the interest liabilities.

 A revenue deficit defines the gap between the expenditure and the receipts. The estimated net income is greater than the current net income, and to manage the budgetary expenditure, the government needs to do the borrowing.

The insufficiency of funds to carry out daily operations by the government is highlighted during a revenue deficit. The formula for a revenue deficit is subtracting the revenue receipts from the revenue expenditure or the total revenue expenditure minus the sum of the tax revenue and non-tax revenue.

Difference Between Fiscal Deficit and Revenue Deficit

1. A fiscal deficit is the excess of the total expenditure; conversely, a revenue deficit is the excess of the total revenue expenditure.
2. The extent of how much the government has borrowed is shown in a fiscal deficit; on the other hand, the extent of the government’s borrowing needs is shown in a revenue deficit.
3. A fiscal deficit indicates the already borrowed transactions; conversely, a revenue deficit indicates the funds required in the future.
4. A fiscal deficit occurs when the expenditure is more than the earnings; on the other hand, a revenue deficit occurs when the government cannot fund the overall expenditure.
5. In a fiscal deficit, total expenditure is considered to measure the excess expenditure; on the other hand, in a revenue deficit, the revenue expenditure is considered.

Comparison Between Fiscal Deficit and Revenue Deficit

Parameters Of Comparison	Fiscal Deficit	Revenue Deficit
Meaning	The excess expenditure apart from the total expenditure, excluding the borrowings, is known as a fiscal deficit.	The excess revenue expenditure than the estimated revenue expenditure is known as a revenue deficit.
Income	The expenditure is more than the income.	The projected income is lesser than the net income.
Represents	An additional requirement of resources.	Dissaving
Indicates	Escalation in future liabilities.	Insufficient funds.
Accounted factors	Total expenditure	Revenue expenditure

References

1. https://econpapers.repec.org/paper/pramprapa/34696.htm
2. https://link.springer.com/article/10.1007/s40953-020-00211-1

Last Updated : 10 August, 2023