Abstract A budget deficit is a situation whereby an individual or a state spends more than its income. This paper examines the factors that can cause a government to experience a budget deficit. It examines how the budget deficits will influence the economic growth in a country. It examines government trade policies, as well as how they can lead to a budget deficit in a country. There is also a discussion on the budget deficit and its effect on the economic growth in the United States. Introduction In an economic set up, there is often an exchange of goods and services. Regardless of the economic activity that an individual carries out, s/he will have both income and expenditure. However, a time reaches when one can spend more than he can receive as an income. The same scenario can be seen in state level, where the government could spend much more money that it can generate from revenues. A budget deficit occurs when a government has spent more than its financial savings in a given year (Economy Watch, n.d. para.1). It particularly occurs when the government has failed to accurately plan for its expenses. A careful plan will take into consideration the net income that a government has, which can be used in the national budget. This is what can prevent high rates of budget deficit. Why high budget deficits today will reduce the economic growth rate in the future In order to understand the relationship that does occur between the budget deficit and the economic growth of a country, it is important to examine factors that are associated with each of them. Factors that will determine the level of budget deficit recorded include revenues from taxes, the size of the government’s expenditure below which its operations can be paralyzed, and the availability of lending agencies. On the other hand, the factors that determine the economic growth rate are the investment that are made in a country by both public and private sector, the human capital that is available, as well as the government policies that have been put in place and their effectiveness. The legislations that determine the openness of an economy for investment, as well as the other micro and macro-economic conditions prevailing in a country also affect economic growth. There is thus a relationship between the economic growth and budget deficit. How they are related is subject to arguments with a few suggesting a positive relationship. However, budget deficit will have negative impact on the economic growth in that will affect the socio-economic conditions and the business environment in a given area. High government budget deficits will impose heavy taxes on the citizens thereby lowering their spirits of investment (Barro, 2008, p360). It will also call for the governments to cut their spending. As a result, the salaries and wages of government employees will be reduced leading to reduced incentives to work Higher budget deficits will prompt the governments to increase their borrowing especially from the private sector. The central banks will be forced to sell gilts and bonds to the private sector, eventually leading to an accumulation of national debts. The effect is that the tax rates in the future will be raised to meet the required expenditures. This will slow th