Cyclicality of the Danish Government Budget

Abstract

The paper is partly devoted to analysing the responses of public finances to an unbalanced growth using model simulation. The results, according to which the cyclical sensitivity of the budget balance is strongly dependent on the underlying shocks that cause the cyclical change, are used to complement the assessment provided by a cyclically-adjusted budget indicator which takes into account the fluctuations in GDP. The paper also discusses alternative procedures to the “gaps elasticity” approach for estimating structural budget balances.