Balanced budget
Topic: Government Budget, Fiscal Policy and FRBM · NCERT: Class 12, Ch 5 "Government Budget and the Economy"
Meaning
A balanced budget is one where the government's expenditure is exactly equal to its revenue. There is no deficit and no surplus, so the government does not need to borrow. In practice, most budgets are deficit budgets. Keynesian economics also shows that a balanced budget is not neutral for the economy. If spending and taxes rise by the same amount, income still goes up.
Example
Suppose a government collects ₹500 crore and spends exactly ₹500 crore. Its budget is balanced. Now suppose it raises both spending and taxes by ₹100 crore. With the balanced budget multiplier equal to 1, national income rises by ₹100 crore.
Don't confuse with
- Balanced budget multiplier: this is not a type of budget. It is the effect on income of equal changes in G and T, and it always equals 1.
Related concepts
- Surplus budget
- Budget deficit
- Revenue deficit
- Effective revenue deficit
- Fiscal deficit
- Primary deficit
- Net interest liabilities
- Government dissaving
- Quality of government expenditure