A government budget deficit occurs when a government’s expenditures exceed its revenues over a specific period, typically a fiscal year.

• Cyclical budget deficit: This arises from short-term fluctuations in the business cycle, such as during a recession or slow economic growth.
  • For example, tax revenues fall due to lower incomes and profits, while spending on unemployment benefits and automatic stabilizers rises, creating a deficit.
• Structural budget deficit: This stems from a fundamental, long-term mismatch between revenues and expenditures, even at full employment or during economic expansions.
  • It occurs when spending commitments exceed sustainable revenue sources, leading to persistent deficits.