Monitoring Budgetary Discipline: Some Simple Indicators

Abstract

Marin puts forward a dissenting view concerning the role of the cyclically-adjusted budget balance in the context of the Stability and Growth Pact. The author proposes, among others, a simpler indicator, which adjusts the budget balance for the impact of a change in economic activity from the current growth rate to a decline corresponding to a less than severe recession. The aim of the indicator is to help assess the risk of the budget deficit increasing above 3% of GDP in case of adverse cyclical developments. The main advantage of the indicators proposed by Marin is that they do not require an assessment of the cyclical position of the economy, which is often subject to considerable uncertainty.