A Disaggregated Approach to Analyzing Public Finances in Austria

Bernhard Grossmann () and Doris Prammer
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Bernhard Grossmann: Oesterreichische Nationalbank

Monetary Policy & the Economy, 2005, issue 4, 61–75

Abstract: The budget elasticities derived in this study indicate that a 1% deviation of GDP from the long-term growth potential causes a purely cyclical change of 0.38% of GDP in Austria's budget balance. The predominance of progressive income taxation in Austria is reflected in the estimated elasticity of direct taxes on households to average income of 1.3. We expected the elasticity of direct taxes on enterprises to gross operating surplus to come to 1, since the corporate income tax is a proportional tax; the computation result of 0.9 confirms our assumption. The elasticity of indirect taxes to private consumption of 0.97 documents both the high share of proportional taxes and the impact of specific taxes, while the elasticity values of social security contributions and pension insurance contributions to average income (0.99 and 1) reveal the close correlation of these budget categories with the macroeconomic base variable. The elasticity of unemployment benefits to the number of unemployed persons of 0.9 results from the rising average duration of unemployment. Between 2000 and 2004, the general government's structural budget balance (i.e. the budget balance adjusted for cyclical effects and one-off measures) improved from —2.1% to —0.9% of trend GDP. The development of the structural budget balance in Austria is above all shaped by discretionary measures based on legislative changes. The deviation of budget categories' development from the underlying tax base, which is especially pronounced for progressive taxes, and the deviation of the tax base from GDP are only of minor importance in the development of public finances in Austria.

Keywords: fiscal policy; budget elasticities; error correction model; cyclical adjustments. (search for similar items in EconPapers)
JEL-codes: C50 E6 H6 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (4)

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