Structural Budget Balances: Calculation, Problems and Benefits

Lukas Reiss ()
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Lukas Reiss: Oesterreichische Nationalbank, Economic Analysis Division

Monetary Policy & the Economy, 2013, issue 1, 12–28

Abstract: The reform of the Stability and Growth Pact and the incorporation of “debt brake” rules into national legislation have heavily increased the importance of structural balances in economic policymaking in Europe. As defined by the European Commission, structural balances are calculated by subtracting the estimated cyclical component of government revenue and spending as well as certain temporary factors from the headline balance. Structural balance estimates can be subject to significant measurement errors, which are mainly related to uncertainties about potential output and nonlinear reactions of tax revenue to sharp changes in GDP growth. The definition of temporary factors can also cause substantial problems. While these problems do not render structural balances useless for the implementation of fiscal policy, they imply that policymakers should not aim to reach the target values for the structural balance exactly a specified each year, but rather on average over much longer time periods (unless exceptionality clauses apply). Achieving the targets on average can be ensured by using appropriately specified control accounts.

Keywords: structural balance; cyclically adjusted balance; fiscal rules; fiscal policy (search for similar items in EconPapers)
JEL-codes: E62 H6 (search for similar items in EconPapers)
Date: 2013
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