Structural and cyclical deficit /From Wikipedia, the free encyclopedia.
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.
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.
n a structural deficit, things are so out of balance that a country (or state, or municipality, etc.) will post a deficit regardless of how well the economy is doing. In a strong economy, revenues (tax receipts, etc) rise due to increased economic activity (more jobs, more spending, etc). With a structural deficit, the strength of the economy is irrelevant - a deficit will be posted regardless..
How do countries get rid of structural deficits?
1. Cut spending.
2. Raise revenues (usually through tax increases).
Neither of these options are too appealing for politicians, which is why many structural deficits continue to linger.
Deficits lead to increased debt loads, which in turn lead to even higher deficits (due to the interest paid on debt outstanding).
Structural and cyclical deficit /From Wikipedia, the free encyclopedia.
ReplyDeleteStructural 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.
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.
ReplyDeleten a structural deficit, things are so out of balance that a country (or state, or municipality, etc.) will post a deficit regardless of how well the economy is doing. In a strong economy, revenues (tax receipts, etc) rise due to increased economic activity (more jobs, more spending, etc). With a structural deficit, the strength of the economy is irrelevant - a deficit will be posted regardless..
ReplyDeleteHow do countries get rid of structural deficits?
1. Cut spending.
2. Raise revenues (usually through tax increases).
Neither of these options are too appealing for politicians, which is why many structural deficits continue to linger.
Deficits lead to increased debt loads, which in turn lead to even higher deficits (due to the interest paid on debt outstanding).