A New Method of Assessing the Structural Budget Balance: Results for the Years 1995-2000

Abstract

A precise assessment of the impact of the cyclical conditions on the budget is very important to correctly assess the state of public finances. Instead of using only GDP as a reference, the authors compute the trends and the cyclical components for a limited number of macroeconomic variables whose impact on public finances is particularly large (e.g. private consumption, employees’ gross earnings, operating surplus, employment in the private sector). The cyclical adjusted balance is then computed adjusting the budget for the effects of those cyclical components. This is done on the basis of legal and administrative rules, taking into account their historical evolution.