Government deficits reinterpreted Willem H. Buiter Public sector debt and deficits are a matter of concern to governments throughout the world. After presenting data on the public debt and deficits in the UK and abroad, this paper considers four key issues. First, does an increase in the budget deficit today make an increase in inflation in the future more likely? In economies like the UK the answer is no, because the scope for raising revenue by money creation is limited compared to raising taxes. Second, how does one evaluate the consistency of a given spending and tax programme? A number of measures are presented which indicate the adjustment that must be made to spending and tax plans if the government is to remain solvent. Third, it is often argued that an increase in budget deficits will merely crowd-out private spending. The paper shows that the truth of this proposition depends critically on the state of the economy, the time horizon, and whether the increased deficit is temporary or permanent. Finally the question of deriving a suitable measure of fiscal stance is considered. Developing an index of fiscal impact requires a suitable economic model and a number of different measures are considered and criticized. Conventional deficit measures, whether actual, cyclically-corrected, or inflation corrected, are a poor indicator of the government's true fiscal stance.