Towards a single fiscal performance indicator

Nicholai Benalal, Maximilian Freier, Wim Melyn, Stefan Van Parys and Lukas Reiss

No 288, Occasional Paper Series from European Central Bank

Abstract: A key element of the European reform agenda is to simplify the EU fiscal governance framework by moving towards a single debt anchor and a single operational indicator as the basis for formulating fiscal targets and assessing compliance. This paper puts forward an in-depth analysis of two alternative fiscal performance indicators currently used in the EU fiscal framework: the change in the structural balance and the expenditure benchmark. Comparing these two indicators allows us to identify options for the design of a fiscal performance measure – such as assumptions on cyclical adjustment and the inclusion of fiscal variables – and assess their policy impact. Our paper finds that the expenditure benchmark used in the EU fiscal governance framework has advantages over the change in the structural balance. However, it still has scope for improvement. The paper also shows that taking account of interest payments in the expenditure benchmark would make fiscal policy more supportive of the monetary policy stance. JEL Classification: C54, E62, E65, F54, F47

Keywords: EMU; euro area; fiscal governance; Stability and Growth Pact. (search for similar items in EconPapers)
Date: 2022-01
New Economics Papers: this item is included in nep-eec and nep-mac
Note: 427376
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbops:2022288

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