The Balance of the Budget

It seems to be a generally accepted idea that one of the most important means the State ¹ has at its disposal to influence the economy is the budget deficit or surplus, defined as the difference between certain incomes and expenditures in the budget. The budget balance, that is to say the budget surplus or deficit, and the changes therein, is often taken to indicate whether the budget works expansively or contractively. ² The reason for this is well known and quite simple. Since State expenditure involves the creation of purchasing power in the private sector, and State income involves the reduction of private purchasing power, then a budget surplus (or perhaps an increase in the budget surplus or a decrease in the budget deficit) is considered to give rise to a contraction; while conversely a budget deficit is considered the cause of expansion. From this it is concluded that the budget balance and the changes in it are the State’s most important means. It can be said without exaggeration that most theoretical as well as practical discussions on budget policy during the past two decades have been conducted on these lines.