What is fiscal responsibility?

Fiscal responsibility is an economic concept that has various definitions, depending on the economic theory of the person or organization offering the definition. Some say being fiscally responsible is just about reducing debt, while others say it's about eliminating debt altogether. Others might argue that it is about controlling the level of debt without reducing it completely. Perhaps the most basic definition of fiscal responsibility is the act of creating, optimizing, and maintaining a balanced budget.

"Tax" refers to money and can include personal finances, although it is often used in reference to public money or public spending. This may involve income from taxes, income, investments or treasuries. In a governmental context, a pledge of fiscal responsibility is the government's assurance that it will spend, earn, and render judgments judiciously, without imposing undue hardship on its citizens. Fiscal responsibility includes a moral contract to maintain financially sound government for future generations, because a first world society is difficult to maintain without financially sound government.

Fiscal responsibility usually starts with a balanced budget, with no deficit or surplus. Expectations of what could be spent and what is actually spent are the same. Many forms of government have different views and expectations for maintaining a balanced budget, with some preferring to run a budget deficit at certain economic times and a budget surplus at others. Other types of government consider a budget deficit to be fiscally irresponsible at any given time.

Fiscal irresponsibility refers to the lack of effective financial planning by an individual, company or government. This can include cutting taxes in one crucial area while dramatically increasing spending in another. This type of situation can cause a budget deficit where outgoing expenditure exceeds incoming money. A government is a business in its own right, and no business or private citizen can prosper forever while operating at a deficit.

When a government is fiscally irresponsible, its ability to function effectively is severely limited. Emerging situations arise unexpectedly, and a government needs quick access to reserve funds. A fiscally irresponsible government cannot support programs designed to provide quick relief to its citizens.

A government, company or individual can take steps to become more fiscally responsible. A useful method for government is to provide some financial transparency, which can reduce waste, expose fraud, and highlight areas of financial inefficiency. Not all aspects of government budgets and spending can be publicly displayed due to various security risks, but providing an inside look at government spending can give a nation's citizens a sense of well-being and keep leaders honest. Likewise, an average citizen who is honest with himself about where he is spending his money can better determine where he could make cuts that would allow him to live within his means.