The term structural surplus or deficit is an economics term used by the Government Accountability Office. Included below is also a definition of “structural deficit” from the Financial Times Lexicon, which, tellingly, does not contain a definition for “structural surplus”.
Structural Surplus/Deficit (Economics Term)
See under Cyclically Adjusted Surplus or Deficit.
Definition of Structural Deficit
The Financial Times Lexicon has content sourced from the Financial Times and Longman Business Dictionaries. Its definitions of Lexicon of Economic Terms includes the following:
A budget deficit that results from a fundamental imbalance in government receipts and expenditures, as opposed to one based on one-off or short-term factors. [Source: Financial Times]
A government budget deficit occurs when a government spends more than it receives in tax revenue, while a structural deficit is when a budget deficit persists for some time.
Structural deficits will eventually pose a problem for any government. Deficits are financed by borrowing, and continued borrowing leads to an accumulation of debt. The ability to pay off this debt is measured by a country’s debt relative to its GDP, referred to as its debt-to-GDP ratio.
If a country’s debt-to-GDP ratio gets too high, investors will worry that the government will either default on this debt, or will deflate its value away by monetising the debt and thereby engineer a high inflation rate.
A number of European countries in 2011, such as Greece and Spain, are now facing structural deficits leading to a crisis of confidence regarding their ability to pay off this debt.
The point at which a structural deficit and rising debt-to-GDP ratio can lead to a crisis of confidence depends on the credibility of a country. A country with a long history of not defaulting on its debt will endure large deficits without a financial crisis.
The US, for instance, has large structural deficits but is still able to borrow at very low interest rates. While the UK’s debt-to-GDP ratio has hovered around 40% from 1980 to 2007, since then it has doubled to 80% due to recent large deficits. [Source: John Coleman, professor of economics, Fuqua School of Business, Duke University]