The cyclically-adjusted budget balance in EU fiscal policy making: A love at first sight turned into a mature relationship

Martin Larch and Alessandro Turrini

No 374, European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: The cyclically-adjusted budget balance (CAB) plays a key role in the fiscal surveillance framework of the Economic and Monetary Union. It started off in a supporting role in the shadow of the headline deficit and, before long, turned into the linchpin of the rules and requirements of the Stability and Growth Pact. The steep ascent was driven by high hopes and expectations which, with the passing of time were only partly met. The everyday practice of the EU fiscal surveillance rapidly revealed a number of caveats of the instrument which, at times, hampered the effectiveness of fiscal surveillance. This paper provides a comprehensive review of the changing fortunes of the CAB in the EU fiscal surveillance framework. It portrays its main shortcomings and the way they can be dealt with in practice. As an overall conclusion the paper argues that, although the CAB is not devoid of problems and imperfections, it is superior to the headline deficit in most respects.

Keywords: budget balance; cyclical adjustment; EU fiscal surveillance framework; Larch; Turrini (search for similar items in EconPapers)
JEL-codes: E61 H3 H6 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2009-03
References: Add references at CitEc
Citations: View citations in EconPapers (43)

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Related works:
Working Paper: The Cyclically Adjusted Budget Balance in EU Fiscal Policymaking. Love at First Sight Turned into a Mature Relationship (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:euf:ecopap:0374

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