Deficit Financing Meaning

Deficit financing is the term which is applicable to government financing, government uses this source when it runs out of funds. Typically a government receives revenues in the form of direct and indirect taxes and it spends that money by granting money to various projects like infrastructure spending, giving subsidies to weaker section of society and so on. When the expenditure of government begins to exceed its revenues than it has no option but resort to borrowing from markets or printing more money.

Deficit financing may happen either due to bureaucratic inefficiency like tax evasions by corporate and individuals, corruption leading to policy paralysis or in case of economy suffering from recession it is used to stimulate the economy of the country though it results in increased inflationary pressure for an economy.

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