what is the difference between a structural budget deficit and a cyclical one

A structural budget deficit arises irrespective of the business cycle. It will exist whether the economy is in the boom or recession phase of its business cycle: in short, the government is spending beyond its means on a consistent basis, meaning that it has to borrow regularly in order to finance its expenditure. The danger is that sooner or later this overspending will become unsustainable. On the other hand, a cyclical deficit arises as a result of the operation of the automatic stabilisers: for example, when an economy enters a downturn, it will need to increase the level of its benefit payments (e.g JSAs for the unemployed) and will also receive less tax revenue. This will cause the cyclical deficit to swell. However, on the upswing the opposite will occur where benefits fall and tax revenues rise ( as rising incomes move into higher tax brackets) such that the deficit incurred on the downswing ‘melts’ away.

SB

Related Economics A Level answers

All answers ▸

Explain why the use of petrol and diesel cars may be a source of market failure.


In February 2013, the proposed takeover by Barr of Britvic was referred to the Competition Commission for investigation. There were likely to have been concerns that the takeover would lead to...


Evaluate the impact of the increase in the number of public sector employees on the UK economy (12)


Explain how price and output are determined in both the short run and long run in a monopolistically competitive market (15 marks)