Structural Balances and All That: Which Indicators to Use in Assessing Fiscal Policy

Nigel Chalk

No 2002/101, IMF Working Papers from International Monetary Fund

Abstract: Structural indicators of a country's fiscal position are regularly used as estimates of both discretionary changes in fiscal policy and the effect of fiscal policy on aggregate demand. This paper looks at such indicators and evaluates, from a theoretical standpoint and from empirical case studies, their usefulness in measuring the size of discretionary policy action or fiscal demand stimulus. Two propositions are examined in detail: first, that the change in the primary structural balance provides a better indicator of discretionary fiscal policy than does the change in the primary balance; and second, that the change in the structural balance is a good indicator of the demand stimulus arising from changes in the fiscal position. In addition, the paper discusses measurement problems relating to structural balances and the use of the fiscal impulse as an alternative to structural balances.

Keywords: WP; potential GDP; aggregate demand; Structural balances; fiscal stimulus; weighted budget balance; policy stance; fiscal policy measure; budget constraint; consumption-savings decision; impact of fiscal policy; consumption good; imperfect competition; demand stimulus; Fiscal stance; Macro-fiscal analysis; Potential output (search for similar items in EconPapers)
Pages: 31
Date: 2002-06-01
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Citations: View citations in EconPapers (24)

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