Budget deficits and their consequences for the economy have long been at the focus of debate by economists, politicians and the general public. This is understandable: when a modern budget is being constructed, the deficit is seldom far away. They occur in many countries, including the highly developed ones. Nowadays, in spite of the lingering influence of the Keynesian school with its rather favourable view of budget deficits, these are generally frowned upon. Hence, sound fiscal policy tends to be equated with very small, if any budget deficits. Deficits are considered particularly damaging when persistent, because then they eventually lead to a flagging economic sentiment and rising risk due to the uncertainty of the country's future. Finally, it generates high inflation expectations.

Budget deficits may arise due to several factors. Firstly, tax receipts may have been budgeted at too low a level, and do not match expenditure. Expenditure on the other hand may exceed the planned amounts, which is sometimes well justified economically or socially (typically the "rigid" expenditure). Finally, the system of tax collection, storage and distribution of funds may be faulty, as well as the budgeting process itself.

The fact that the general government budget is in deficit may not necessarily jeopardise the country's finance. What matters is its size in relation to the GDP and its "neutral" level. Is it 1% or 0.5% rat her of the GDP? It is impossible to quote one universal rate, because the size of a "neutral" deficit depends on a number of factors. These range from the current condition of the economy in question through its structural features to the network of economic and political interdependencies prevailing in the country.

A persistent deficit gradually turns into public debt, which is a very expensive way of financing excessive public spending in a certain period. Given that, a budget deficit may undermine public finances both in the current and future periods. In the current period it allows fiscal authorities, when other methods to deal with the gap have been exploited (e.g. when no more spending cuts are possible because the remaining expenditure is rigid) to resort to the worst possible method, i.e. borrowing. In terms of future periods, current deficits burden the next generations with the costs of servicing. They also create the danger of a snowballing effect of deficit-public debt spiral.