What is a deficit budget?

Deficit Budget. When government estimated expenditure exceeds government estimated receipts in the budget, the budget is said to be a deficit budget In other words, in a deficit budget, government estimated revenue is less than estimated expenditure. Symbolically :
Deficit Budget
Estimated Govt. Receipts < Estimated Govt. Expenditure
Keynes recommended deficit budget to solve the problem of unemployment and underemployment. Today deficit budget has become very common. Government covers the gap either (i) through domestic borrowing or (ii) through sale of assets or (iii) through borrowing from external sources. Thus a deficit budget implies increase in government liability and fall in its reserves. When an economy is in an under-employment equilibrium due to deficient demand, a deficit budget is a good remedy to combat recession.
A deficit budget has its own merits especially for developing economy. For example:
(i) It accelerates economic growth, (ii) It enables to undertake welfare programmes of the people, and (iii) It is a cure for deflation as it checks downward movement of prices.
At the same time, it has demerits also such as: (i) It encourages unnecessary and wasteful expenditure by the government, (ii) It may lead to financial and political instability, and (iii) It shakes the confidence of foreign investors.
We have read in the preceding chapter the situation of excess demand leading to inflation (continuous rise in prices) and the situation of deficient demand leading to depression (fall in prices, rise in unemployment, etc.). A surplus budget is recommended in the situation of inflationary trends in the economy whereas a deficit budget is suggested in the situation of depression.

Budget deficit is the excess of total expenditure over total receipts. Following are the three types (measures) of deficit.
1.    Revenue deficit = Total revenue expenditure - Total revenue receipts
2.    Fiscal deficit = Total expenditure - Total receipts excluding borrowings
3.    Primary deficit = Fiscal deficit - Interest payments