Question

Elucidate structural deficit reasons.

Answer 1

Ans. The economy is strong and even when spending of the government is more than its tax revenue, then the deficit occurs is termed to be Structural. In case of Structural deficits, increase in taxes or cutting spending for short-term cannot resolve the problem.

Reasons for the Structural deficit:

Health care costs. There is a large cost of Healthcare the government bears such as health insurance. The government has to bear the burden because nation’s people are not able to bear that high cost on their own.

Retirement costs. If there are more employees to retire than workers, the costs will increase more rapidly than the resources to fulfill costs. As people who retire live longer than they worked for the country, retirement costs will increase progressively.

Demographic. If the working age population grows slower than the population of more than the age of 60. It will lead to fewer people will pay tax and cost of public services which people of age above 60 need increase steadily.

Spending decision. When people started spending ineffectively, it will lead to a structural deficit. As spending less will lead to lower taxes to the government.

Tax base. If there are low tax revenue to the government and government is spending more than it, then it will lead to a structural deficit.