The budget deficit is financed by the government. That is, there will be a deficit if government expenditure (G) exceeds tax collections (T), which can be covered by selling government bonds (by borrowing money).
- Every deficit must be paid for. First, this is accomplished by selling government securities like Treasury bonds (T-bonds). Treasury bonds are bought by people, companies, and other governments, and they are used as collateral for loans to the government.
- The gap between the federal government's expenditures (also known as outlays) and its tax collections is used to determine the federal budget deficit for a given year (also known as revenue). When the government collects more revenue than it spends, there is no yearly deficit.
Thus this is how the government finance deficit is spent.
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