Deficit Financing

Deficit financing occurs when a government spends more money than it receives through revenue, such as taxes. To cover this gap, the government borrows funds, often by issuing bonds or taking loans. This practice allows the government to fulfill its spending needs—like infrastructure, social programs, or defense—without immediately increasing taxes. However, sustained deficit financing can lead to higher national debt and potential economic challenges, such as inflation or reduced fiscal flexibility. It’s a strategic approach used to manage economic growth and stability but requires careful planning to avoid long-term financial issues.