Modern public finance distinguishes between structural and cyclical deficits. The idea is simple. The structural part of the budget is active determined by discretionary policies such as those covering tax rates, public works or education spending, or the size of defense purchases. In contrast, the cyclical part of the budget is determined passively by the state of the business cycle, that is, by the extent to which national income and output are high or low. The precise definitions follow:
The actual budget records the actual dollar expenditures, revenues and deficits in a given period.The structural budget calculates what government revenues; expenditures and deficits would be if the economy were operating at potential output.
The cyclical budget is the difference between the actual budget and the structural budget. It measures the impact of the business cycle on the budget. It measures the impact of the business cycle on the budget, taking into account the effect of the cycle on revenues, expenditures, and the deficit. The actual, structural, and cyclical budget deficits as a share of gross domestic product.
The actual budget records the actual dollar expenditures, revenues and deficits in a given period.The structural budget calculates what government revenues; expenditures and deficits would be if the economy were operating at potential output.
The cyclical budget is the difference between the actual budget and the structural budget. It measures the impact of the business cycle on the budget. It measures the impact of the business cycle on the budget, taking into account the effect of the cycle on revenues, expenditures, and the deficit. The actual, structural, and cyclical budget deficits as a share of gross domestic product.