Budget deficit is the difference between the yearly revenue and expenditure of the government. Debt is the accumulated deficit. The government can finance the budgetary deficit by borrowing, taxation or printing new currencies. To what extent the government can borrow is based on two issues.

1. Whether the debt is a burden

2. How the debt is financed.

When the government borrows it transfers the burden of reduced consumption to future generation. The future tax would increase, hence a fall in disposable income and consumption in future. If the government borrows too much the saving available to private sector may fall.

It is also argued that the consumer spending is based not only on their current income but also on their expected future income. There is another argument, debt does not matter because we owe to ourselves. This is because although there is a transfer of resources between generation, purchasing power remain within the nation. Any debt from foreign involves a burden.