The Cyclically Adjusted Budget: History and Exegesis of a Fateful Estimate
Posted: 29 Oct 2015
Date Written: October 2015
This paper traces the evolution of the concept of the cyclically adjusted budget from the 1930s to the present. The idea of balancing the budget over the cycle was first conceived in Sweden in the 1930s by the economists of the Stockholm School and was soon reinterpreted and incorporated into the fiscal program of the American political coalition supporting the New Deal, especially by the Committee for Economic Development during and after World War II. In the 1960s, Keynesian economists associated with the Kennedy and Johnson administrations reformulated the notion. Despite their claims at the time, their version differed only in degree from the earlier CED approach, the transformation being largely conditioned by changing political circumstances. In the 1980s, however, the concept changed substantially. Methods for calculating it transformed dramatically, as the notion became a device to limit and direct governments' fiscal policies in a wide sense, that is, including institutional (or “structural”) reforms. The final section of the paper considers the shifting uses of the notion in the European Growth and Stability Pact.
Keywords: Macroeconomics, Fiscal policy, Cyclically Adjusted Budget, EU, Keynesian Economics, History of Economic Thought, Economic History
JEL Classification: B2, C1, E12, E13, E62, H62, H68, N1, N12, N14
Suggested Citation: Suggested Citation