Measuring Cyclically-Adjusted Budget Balances for OECD Countries

Abstract

Document complet disponible sur OLIS dans son format d'origine Complete document available on OLIS in its original format ECO/WKP(2005)21 Unclassified English -Or. English ECO/WKP(2005)21 2 ABSTRACT/RÉSUMÉ Measuring cyclically-adjusted budget balances for OECD countriesAn important tool in the analysis of fiscal policy is the distinction between structural and cyclical components of the budget balance. This paper describes work undertaken to re-estimate and re-specify the elasticities underlying the Economics Department's calculations of cyclically-adjusted budget balances. Account is taken of tax reforms introduced since the previous updating exercise. A number of methodological innovations have been introduced to better account for the lags between taxes and activity and to ensure greater cross-country consistency in the estimates. The methodology underlying cyclical adjustment of expenditures has also been reviewed. Finally, the country coverage has been extended. The overall results are broadly consistent with the previous set of estimates. The sensitivity of government net lending to a 1 percentage point change in the output gap remains at around 0.5% of GDP for OECD economies on average.

The Costs of Greece"s Fiscal Consolidation

“…This feedback effect partly offsets the direct effect of the discretionary fiscal measures summarized in Table 1 by reducing tax revenues and increasing benefit claims. To capture this automatic stabilizer effect, we assume a semi-elasticity of the primary budget balance with respect to GDP of 0.47, as estimated by Girouard and André (2005) for the Greek economy. Furthermore, we assume that the average interest rate on the outstanding stock of government debt equals its actual value over the 2010 to 2014 period in all scenarios considered below.…”

Multilateral Economic Cooperation and the International Transmission of Fiscal Policy

“…To the extent that these transactions do not necessarily involve capital losses, they raise gross debt, but not net debt. To get a sense of the magnitudes of these "unconventional" discretionary fiscal measures, we thus compute the difference between the 4 See Girouard and André (2005). The data are constructed on the basis of a disaggregated approach, computing the response of different budget items to the cycle.…”

Changes in the fiscal stance and the composition of public spending

“…The methodology for calculating them is explained in Girouard and André (2005). In brief, the cyclically adjusted component (NLCA) is obtained by estimating and removing the cyclical components of government revenues and expenditures.…”