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8/14/2019 Prof Simply Simple Fiscal Revenue & Trade Deficits
http://slidepdf.com/reader/full/prof-simply-simple-fiscal-revenue-trade-deficits 1/12
Deficits: Fiscal, Revenue & Trade
– By Prof.Simply Simple
• Prof. Simply Simple had earlier takenyou through the concept of FiscalDeficit. (For ref: kindly refer the TMFWebsite)
• This week, we will look at RevenueDeficit (which is a subset of the FiscalDeficit) and Trade Deficit (which is afunction of our import-export trading)
8/14/2019 Prof Simply Simple Fiscal Revenue & Trade Deficits
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What is a Deficit?
• Simply put, a budget deficit occurs when an
entity (often a government) spends more
money than it takes in.
• The opposite of a budget deficit, on the other
hand, is a budget surplus.
8/14/2019 Prof Simply Simple Fiscal Revenue & Trade Deficits
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To reiterate Fiscal Deficit…
• The expenses that the Government incurs are,
more often than not, more than the income it
makes. The difference or deficit between the
two is called a Fiscal Deficit.
• Thus, the Fiscal Deficit is:
Govt.'s total expenses – Govt.’s total receipts (excluding borrowing)
8/14/2019 Prof Simply Simple Fiscal Revenue & Trade Deficits
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What are Govt. Expenses?
• The Government needs money for its hugeexpenses.
• We can broadly divide Govt. expenses into twotypes:
– Revenue Expenses, which it incurs inrunning its day-to-day business like paying
salary to its staff
– Capital Expenses, which include allexpenses incurred by the Govt. for creating
assets like money spent on constructing ahospital
8/14/2019 Prof Simply Simple Fiscal Revenue & Trade Deficits
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What are Govt. Revenues?
• We can broadly divide the sources of
Government revenues or earnings into
two categories:
– Tax Sources, which include all thedirect and indirect taxes, and are
recurring in nature
– and Non-tax Sources, which includeRevenue Receipts and capital
receipts, and are a kind of one-time
income
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Before we move on…
• To understand the concept of Revenue Deficit, we need to
quickly understand the following two terms from the
previous two slides:
– Revenue Expenses: Revenue expenditure is the expense
incurred for the normal running of the Govt.’s various
departments and services, interest charged on debt
incurred by Govt., subsidies, etc.
– Revenue Receipts: Revenue receipts consist of tax
collected by the government and other receipts consisting
of interest and dividend on investments made by Govt.,
fees and other receipts for services rendered by Govt.
8/14/2019 Prof Simply Simple Fiscal Revenue & Trade Deficits
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So what is Revenue Deficit?
• Revenue deficit is the difference between the
revenue expenditure and the revenue receipts
(the recurring income for the Government).
• Thus, the Revenue Deficit is:
Revenue Expenditure – Revenue Receipts
• It shows the shortfall of government’s currentreceipts over current expenditure.
• When a country runs a revenue deficit, it means
that the Govt. is unable to meet its runningexpenses from its recurring income.
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So…
• Revenue deficit indicates the shortfall
between revenue incomes and
revenue disbursements, which is to be
filled by capital account surplus, or borrowings.
• Thus, a revenue deficit implies that the
government is unable even to cover itsexpenditure on maintaining itself
through the tax and non-tax revenues
that it mobilizes, and has to resort to
borrowings.
8/14/2019 Prof Simply Simple Fiscal Revenue & Trade Deficits
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Confused?!
Look at the graph below…
Govt. Expenses
Revenue Expenses
Capital Expenses
Govt. Receipts
Tax Sources
Non-tax Sources
Revenue Receipts Capital Receipts
FISCALDEFICIT
Govt.'s Expenses – Govt.’s Receipts
REVENUE DEFICIT
Revenue Expenses – Revenue Receipts
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Before we tackle Trade Deficit..
• We need to understand what is known as Balance of
Trade
• Balance of Trade is a measure of a country's
exports minus its imports.
• A positive balance of trade is known as a trade
surplus and consists of exporting more than is
imported; a negative balance of trade is known as a
trade deficit or, informally, a trade gap.
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Therefore…
• Simply put, Trade Deficit is a negative balance of
trade, i.e. when a country’s imports exceed its exports.
• Thus, the Trade Deficit is:
Export – Import
(where imports are greater than exports)
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Hope you have now understood the difference between
Fiscal Deficit, Revenue Deficit & Trade Deficit
In case of any query, please e-mail