Wouldn't running a "small" fiscal deficit for 3 years to invest in infrastructure increase the accumulated debt?


In the recent Canadian federal election, the winning Liberal party's platform included running a "small" fiscal deficit of about C$10B each year for 3 years to invest in infrastructure. The commentary about this that most surprised me was this would not increase the accumulated debt, and in fact would still contribute to reducing the debt, albeit more slowly.

Does that make sense? My understanding is that any fiscal year you end up with a deficit means you're borrowing more to make up the shortfall, and thus adding to the accumulated debt. Or are there technical aspects during the year that do otherwise?


Given that the standard definition of government spending does not include the repayment of maturing debt, your understanding is correct. In particular, during the three years of running the deficit as planned, the Canadian federal government would be adding to the debt.

Perhaps what the commentary actually meant was the evolution of the debt level in the longer term (rather than during the three years in question). Say, five, ten, or more years into the future, i.e., long after the infrastructure investment has been made. Better infrastructure could contribute to economic growth and increase government revenues. In that case it is possible the government would eventually run a budget surplus and be on the path of reducing the debt.

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  • Associate Professor
Last updated on
March 9, 2018

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