What is the difference between a structural deficit and a cyclical deficit?

What is the difference between a structural deficit and a cyclical deficit Introduction: The Intricacies of Fiscal Deficits Hello everyone! Welcome to our video on the intriguing world of fiscal deficits. Today, we'll be focusing on two key types of deficits - structural and cyclical deficits. While both have their own significance, they differ in terms of their causes and the actions required to address them. So, let's dive in! Defining the Structural Deficit A structural deficit refers to a budget shortfall that persists even when the economy is operating at its full potential, without any cyclical fluctuations. In simpler terms, it's the portion of the deficit that remains even during periods of economic prosperity. This type of deficit arises due to long-term imbalances between government spending and revenue. Factors such as demographic changes, tax policies, and permanent increases in government expenditure can contribute to a structural deficit. Understanding the Cyclical Deficit On the other hand, a cyclical deficit is directly linked to the economic cycle. It occurs when government spending exceeds revenue due to a downturn in the economy.