Structural deficit
Also called: Cyclically adjusted deficit · Topic: Government Budget, Fiscal Policy and FRBM · NCERT: Beyond NCERT
Meaning
The structural deficit, also called the cyclically adjusted deficit, is the part of the fiscal deficit that would still exist if the economy were running at its potential output. Potential output is the normal level of output when resources are fully used. The actual (headline) deficit swings with the business cycle. In a recession, tax revenue falls and welfare spending rises, so the deficit grows even if policy does not change. In a boom, it shrinks. Removing this cyclical part shows the government's true fiscal stance, meaning how expansionary or tight its policy really is.
Example
In 2020-21, India's fiscal deficit jumped to 9.2% of GDP. Part of this rise was cyclical, because COVID crushed tax revenue. Part came from deliberate relief spending. Only the second part reflects the structural position.
Don't confuse with
- Headline fiscal deficit: the actual gap = total expenditure − (revenue receipts + non-debt capital receipts). As NCERT cautions, a bigger headline deficit does not always mean a more expansionary policy.
Related concepts
- Automatic stabiliser
- Discretionary fiscal policy
- Countercyclical fiscal policy
- Procyclical fiscal policy
- Fiscal stimulus
- Fiscal space
- Austerity
- Fiscal drag