Both the surplus and the deficit depend on a budget and in this case, they both depend on the government budget. The government budget therefore would be the proposed revenues collected by the government and the spending in the government in a financial year. Therefore, the government budget is simply based on mere estimations and therefore bringing up the emergence of these two concepts. A budget is prepared for both the local and national governments and it has to it social security responsibility (Clarke & Stewart, 1990, p.44).
Surplus refers to being in excess of what is needed and in this case, it simply refers to the government budget balance. This is commonly referred to as the general government balance. It is usually the difference between the government’s revenue and the government’s spending. A surplus can however only occur if there is a positive value in the difference between the revenues and spending in the government is a surplus has to be in excess. The government budget balance otherwise known as the surplus balance therefore can be characterized into two namely; the primary balance and the structural balance otherwise known as the cyclic-adjusted balance (Clarke & Stewart, 1990, p.57).
The primary balance is usually equivalent to the government budget balance but only before payment of interests. It is therefore defined as the governments net borrowing and lending omitting the interest payments on liabilities.
The structural balance on the other hand is the general government balance fine-tuned for the projected positive or negative impacts on the budget. It usually ties to modify and therefore fine-tune the impacts brought about by the GDP on the national economy and is usually from the cyclic position of the national economy (Rivlin & Isabel, 2004, p.114).
The deficit on the other hand refers to falling short of some amount of money in reference to a predefined amount. In this case, it is the excess in expenditures incurred by the government over the revenues generated by the government. The deficit therefore occurs if there is a negative value between the government revenues generated by a government and the spending incurred in a government. As opposed to the surplus, the deficit can be quantified with or without the interest payments on the governments’ debts which are usually in the form of the governments’ expenses (Hager & Pianin, 1997, p. 54).
In government deficit, there are two main concepts namely; the primary deficit and the total deficit. The primary deficit is defined as the difference in the current expenditure of the government on goods and services and the total current revenue a government generates which is usually from all the types of taxes acquired by the government from the transfer payments. (Dornbusch & Mario, 1990, p. 144).
The total deficit which is also known as the fiscal deficit is defined as the primary deficit and all the interest payments on debts owed by the government.
From both definitions,...