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Definition: Revenue deficit occurs when the day-to-day expenses of a government are more than its day-to-day revenue.
A government has many day-to-day expenses like the salaries of its employees. Similarly, it has several day-to-day revenues, like income through taxes. If a government’s day-to-day expenses are more than its day-to-day revenue, it means it’s running a revenue deficit. Let’s discuss how to interpret a government’s revenue deficit. As we already said, revenue deficit is the excess of day-to-day expenditures over day-to-day income. When a government’s revenue deficit increases, we should examine the causes behind it. Has the government started providing more jobs? Has it started spending more on the maintenance of its buildings? Whether the excess revenue deficit has been caused by inflation. It could be that the government is providing jobs to people to woo them to get their votes, which may lead to unsustainable levels of revenue deficit. Or, it could be that the suppliers of the government are not willing to absorb the rise in prices of inputs and want the government to pay for the entire price rise. Such an analysis will tell us whether the government is managing its revenue deficit well or not.
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