Cyclically Adjusted Budget Balances: An Alternative Approach

ECB Working Paper No. 77

73 Pages Posted: 21 Jul 2003

See all articles by Carine Bouthevillain

Carine Bouthevillain

Banque de France

Philippine Cour-Thimann

European Central Bank (ECB)

Gerrit van den Dool

Organization for Economic Co-Operation and Development (OECD) - Directorate for Employment, Labour and Social Affairs (ELS)

Pablo Hernández de Cos

Banco de España

Geert Langenus

National Bank of Belgium

Matthias F. Mohr

European Central Bank (ECB)

Sandro Momigliano

Bank of Italy

Mika Tujula

European Central Bank (ECB)

Date Written: September 2001

Abstract

Estimates of cyclically-adjusted budget balances, correcting actual government budget balances for business cycle fluctuations, are produced by many institutions. This paper presents an alternative approach for the cyclical adjustment of budget balances. The approach is based on a disaggregated method for the calculation of the cyclical component of the budget balance. In this approach, the effects of changes in theA structure of demand and national income on government revenue and expenditure are captured. Cases where the various macroeconomic bases are in different phases of the cycle or exhibit fluctuations of different magnitude are taken into account in this way. The computation of the cyclical components of these macroeconomic bases is based on the Hodrick-Prescott filter and takes into account the latest evidence presented in the literature about the properties of this filter. The paper also presents new estimates of the elasticities of individual budget items with respect to the relevant macroeconomic variables.

Keywords: fiscal policy; government budget; cyclical adjustment; business cycles

JEL Classification: E32, E60

Suggested Citation

Bouthevillain, Carine and Cour-Thimann, Philippine and van den Dool, Gerrit and Hernández de Cos, Pablo and Langenus, Geert and Mohr, Matthias F. and Momigliano, Sandro and Tujula, Mika, Cyclically Adjusted Budget Balances: An Alternative Approach (September 2001). ECB Working Paper No. 77, Available at SSRN: https://ssrn.com/abstract=356222

Carine Bouthevillain

Banque de France ( email )

Paris
France

Philippine Cour-Thimann (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Gerrit Van den Dool

Organization for Economic Co-Operation and Development (OECD) - Directorate for Employment, Labour and Social Affairs (ELS) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Pablo Hernández de Cos

Banco de España ( email )

Madrid, 28014
Spain

Geert Langenus

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

Matthias F. Mohr

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Sandro Momigliano

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Mika Tujula

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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