Structural and cyclical deficit

Structural deficit forms part of the public sector deficit. Structural deficit differs from cyclical deficit in that structural deficit exists even when the economy is at its potential.

Structural deficit issues can only be addressed by explicit and direct government policies: reducing spending, increasing the tax base, and/or increasing tax rates. It can be described as more "chronic" or long-term in nature hence needing government action to remove it.

While enduring a structural deficit, the government spends money on the future of the country (e.g. infrastructure). If the government thinks that the investment in infrastructure may yield better returns in the long run, they borrow more money for purposes of infrastructure investment. If the borrowed money continues to be more than the revenues generated by the government (through tax and other means), it will cause a structural deficit for the country.

The opposite of a structural deficit is a structural surplus. Likewise, the opposite of a cyclical deficit is a cyclical surplus.

See also

• Fiscal theory of the price level
• Output gap
• Rubinomics

External links

• structural deficit (FT lexicon)
• The myth of the structural deficit

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