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Finance Dictionary and Glossary of Investment Terms
budget surplus
Definition 1.
The amount by which a government's, company's, or individual's income exceeds its spending over a particular period of time. Generally, a government does not need to maintain a budget surplus. However, a government has to be careful about running a budget deficit to make sure that the means of financing the deficit do not cause too much of an interest burden. In general, economists become worried when government debt, the most common way of financing a government deficit, rises sharply as a proportion of Gross Domestic Product. This is because interest payments might also rise as a proportion of Gross Domestic Product unless the government manages to sufficiently reduce the average interest rate paid on the debt. An increasing interest burden means that government revenues will be diverted to pay for financing costs, as opposed to being used for more productive purposes. As in the case of the government, individuals and corporations do not have to ensure that their budgets are in surplus or balanced, but they have to be mindful of interest costs as a proportion of their income. Some economists believe that manipulation of the government budget surplus is an effective way of stimulating or slowing economic growth. However, other economists say that manipulating the budget deficit will only result in a change in the price level in the economy, since actual production change in an economy is only decided by changes in the labor force, the state of technology, and productivity of the workforce.
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