Understanding Revenue Deficit
Revenue deficit is the shortfall when a government or business spends more than its income. This is different from a fiscal deficit, which is the variance between budgeted and actual income.
This deficit can be covered by borrowing or selling assets. To decrease the deficit, costs can be cut or income can be increased, for example, through tax hikes.
Revenue Deficit Calculation
The formula for calculating revenue deficit is:
Total Revenue Receipts - Total Expenditures = Revenue Deficit
The revenue deficit is split into tax revenue receipts and non-tax revenue receipts. It’s not a loss, but a measure of the gap between net income and expenses, indicating whether the entity can maintain operations and meet essential needs.
Revenue Deficit Impact
The effects of a revenue deficit include:
- National debt
- Increased liabilities
- Decreased government creditworthiness
- Social welfare deficiencies
- Asset shortages