Download this Paper Open PDF in Browser

The Cyclically Adjusted Budget: History and Exegesis of a Fateful Estimate

75 Pages Posted: 29 Oct 2015  

Orsola Costantini

Institute for New Economic Thinking

Date Written: October 2015

Abstract

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

Costantini, Orsola, The Cyclically Adjusted Budget: History and Exegesis of a Fateful Estimate (October 2015). Institute for New Economic Thinking Working Paper Series No. 24. Available at SSRN: https://ssrn.com/abstract=2682868 or http://dx.doi.org/10.2139/ssrn.2682868

Orsola Costantini (Contact Author)

Institute for New Economic Thinking ( email )

300 Park Avenue South, 5th Floor
New York, NY 10010
United States

Paper statistics

Downloads
118
Rank
199,254
Abstract Views
624