When and How to Adjust Beyond the Business Cycle? A Guide to Structural Fiscal Balances

Bornhorst, Fabian; Fedelino, Annalisa; Gottschalk, Jan; Dobrescu, Gabriela

doi:10.5089/9781475510201.005

Cited by 47 publications

(34 citation statements)

References 7 publications

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“…In this article, following the literature such as Bornhorst et al (2011), for nominal government expenditure, we only adjust it one-to-one to the cycle of aggregate price level and ignore other cyclical factors' influences on it, since the aggregate real government expenditure is discretionary and fiscal economists always assume zero elasticity of it w.r.t. cyclical factors.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Bornhorst et al (2011) define SFB as an extension of cyclically adjusted fiscal balances, correcting for a broader range of factors than only for the output gap effect such as asset prices, commodity prices and TOT, inflation effect and so on. Normally there are three steps to estimate the structural fiscal balances: (i) identify and remove one-off fiscal operations such as public expenditure on a natural disaster; (ii) assess the impact of the business cycle (output gap) on fiscal revenue and expenditure; and (iii) estimate the effects of other economic cycles or factors.…”

Section: Literature Reviewmentioning

confidence: 99%

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Structural fiscal balances of the UK: a state-space DSGE approach

Liu

2016

Applied Economics

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This article proposes a new framework to estimate and analyse structural fiscal balances of the UK, by combining the state-space modelling with the Bayesian DSGE modelling. In this way, trends and cycles of aggregate variables can be extracted from data consistently with the macroeconomic theory. A setting of an integrated random walk for the underlying stochastic trends fits the data best. An expansion in government spending can increase nominal fiscal revenue to a certain degree, but the effect is not persistent due to two kinds of crowd-out effects: it crowds out domestic investment; and it pushes up the price of domestic goods and simultaneously crowds out the foreign demand. The shocks to the nominal interest rate, foreign output and the government spending are the three major contributors to the variation of the fiscal revenue cycle.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Structural fiscal balances of the UK: a state-space DSGE approach

Liu

2016

Applied Economics

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“…Traditionally, fiscal effort is defined as the CAB. A more refined concept than the structural budget balance, the CAB is an indicator of the nominal budget balance corrected by a cyclical component plus a broad range of factors, such as asset and commodity prices or output composition effects (Bornhorst, 2011).…”

Section: Case Working Paper | No 1 (2015)mentioning

confidence: 99%

Enhancing Credibility and Commitment to Fiscal Rules

Poniatowski

2018

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. 6 Terms of use: Documents in EconStor mayThe objective of this paper is to derive the characteristics of an effective fiscal governance framework, focusing on the incentives that ensure a commitment to the fiscal rules. We study this problem with the use of econometric tools, complementing this analysis with formal modelling through the lens of a dynamic principal-agent framework. Our study shows that both economic and institutional factors play an important role in incentivising countries' fiscal efforts. Fiscal balances are affected not only by the economic cycle, but, among others, by the level of public debt and the world economic situation. We find that the existence of numerical fiscal rules, their strong legal entrenchment, surveillance mechanisms, and credible sanctions binding the hands of governments have a significant impact on curbing deficits. The relationship between the Commission and European Union (EU) Member States (MS), where the EU authorities act as a collective principal that designs contracts for MS, has elements in common with the assumptions of the principal-agent framework. These are: asymmetry of information, moral hazard, different objectives, and the ability to reward or punish the principal. We use a dynamic principal-agent model and show that to ensure good fiscal performance, indirect benefits should be envisaged for higher levels of fiscal effort. In order to account for the structural differences of exerting effort by different MS, it is efficient to adjust fiscal effort to the level of indebtedness. To ensure a commitment to the rules, MS with difficulties conducting prudent fiscal policies should be required to exert less effort than the MS with more modest levels of debt.Abstract CASE Working Paper | No 1 (2015) 7The recent problems of several European Union ( This paper addresses the problem of the effective design of EU fiscal governance, focusing on the EU's numerical fiscal rules, their enforcement, flexibility, monitoring, and the credibility of the sanctions for their breach. In order to define the properties of the optimal contract between EU institutions and MS, we conduct an econometric analysis of the determinants of the cyclically-adjusted balance (CAB). For this purpose we employ random effects instrumental variables regression and a large set of explanatory variables.We test significance of 20 variables suspected of being inter-related with countries' fiscal policy and compliance with fiscal rules...

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“…Por otro lado, para el enfoque desagregado el ajuste se realiza por cada categoría de impuesto, lo cual permite que la elasticidad no se altere por cambios en la composición de los ingresos fiscales (Bornhorst et al 2011). Este último enfoque presupone cierta estabilidad en la participación de cada categoría, lo cual no se cumple en la realidad pues existe una correlación positiva en las fases del ciclo económico y la participación de los impuestos a la renta (Granda et al 2012).…”

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Economía aplicada. Ensayos de investigación económica 2013

Galarza¹

2014

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When and How to Adjust Beyond the Business Cycle? A Guide to Structural Fiscal Balances

Cited by 47 publications

References 7 publications

Structural fiscal balances of the UK: a state-space DSGE approach

Structural fiscal balances of the UK: a state-space DSGE approach

Enhancing Credibility and Commitment to Fiscal Rules

Economía aplicada. Ensayos de investigación económica 2013

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