Budget Surplus

Budget surplus is the amount by which a government's income which primarily comes from taxes and duties exceeds its total expenditures such as defense, social security, science, energy and expenditure on infrastructure, etc.

Budget surplus is a phenomena that is opposite of budget deficit. It is an important tool of fiscal policy. A government runs a budget surplus when the economy is under inflationary pressure. A budget surplus means either an increase in income through increase in taxes or decrease in government expenditures or both. This decreases aggregate demand, brings down price level and cools off the economy.

Formula

Budget Surplus = Government's Total Income − Government's Total Expenditures

Example

The most recent United States federal government annual budget surplus was in 2001. The receipts for the year amounted to $1,991 billion while expenditures for the year were $1,863 billion. This gave us a budget surplus of $128 billion.

In the last four decades, the US government has run budget surplus only in four years from 1998 to 2001.

Written by Obaidullah Jan