The excess of government spending over revenues generated from taxes, import duties and the like. It is sometimes divided into "above the line" (recurrent spending including interest on debt) and "below the line" (capital projects, investment, debt principal repayment). The former is analogous to the "profit and loss" account of an enterprise, whereas the latter is analogous to its "investment sources and uses", with the combined account being equivalent to the "cash flow" account. A country's current account deficit is therefore the gap between its domestic savings and investment. A budget deficit is a form of dis-saving. Large budget deficits generate inflationary pressures.
Deficits can be more easily absorbed by countries with high rates of domestic private savings and well-developed capital markets. Thus a relatively high deficit need not cause problems in an efficient high-saving economy, whereas in a low-saving, highly distorted one, even a small deficit might be destabilizing.