Introduction:

This paper focuses on the calls for a balanced structural budget, namely a zero budget deficit when the economy is deemed to be operating where actual output is equal to potential output; that is where there is a zero output gap. In general, the structural budget position is deemed to be the position, which would arise if the economy were operating at some specified level of output or employment, and a frequently used benchmark is that of potential output. The paper argues that a balanced structural budget may not be achievable in general – that is a balanced budget may not be compatible with a zero output gap. It further argues that through the problematic nature of the concept of potential output and difficulties in securing an estimate of potential output, securing a balanced structural budget is not a well-defined objective.