Cyclical and Structural Budget Deficits

This short revision video takes students through the difference between a cyclical budget deficit and a structural budget deficit.

Cyclical and structural fiscal balance

Cyclical fiscal balance
The size of the fiscal deficit is influenced by the state of the economy: in a boom, tax receipts are relatively high and spending on unemployment benefit is low.

Structural fiscal balance
The structural deficit is that part of the deficit which is not related to the state of the economy. This part of the fiscal deficit will not disappear when the economy recovers. A structural factor might be the long-term effects of an ageing population or perhaps the underlying level of personal and corporate tax avoidance.