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How to Measure Public Finance Consolidation

Author

Listed:
  • Viktor Novysedlák

    (Council for Budget Responsibility)

  • Erik Bugyi

    (Council for Budget Responsibility)

Abstract

This discussion paper provides an overview of the analytical indicators used to evaluate fiscal policy in the short, medium and long term. It focuses on their clear definition and their advantages/disadvantages, and accentuates the importance of their clear interpretation. In addition to the commonly used indicators, such as the size of measures or change in the structural balance, the paper introduces a new indicator measuring the government’s contribution to the sustainable change in fiscal position (government consolidation effort) in a given year. Despite their numerous advantages, short-term indicators do not necessarily reflect the long-term impacts of various measures. These should primarily be assessed using long-term indicators, such as fiscal gap indicators, or through the net worth concept. Despite the existence of several indicators, each and every one of them has its own raison d’etre in fiscal analyses, because they all provide answers to important analytical questions. They should therefore be treated as mutually complementary. Some of the indicators assume the existence of a no-policy-change scenario, which is an essential element in the evaluation of measures implemented by the government. For this reason, such a scenario must have a detailed structure and all its underlying assumptions should be clearly spelled out.

Suggested Citation

  • Viktor Novysedlák & Erik Bugyi, 2014. "How to Measure Public Finance Consolidation," Discussion Papers Discussion Paper No. 2/20, Council for Budget Responsibility.
    • Handle: RePEc:cbe:dpaper:201402
    as

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    References listed on IDEAS

    as
    1. Nathalie Girouard & Christophe André, 2005. "Measuring Cyclically-adjusted Budget Balances for OECD Countries," OECD Economics Department Working Papers 434, OECD Publishing.
    2. International Monetary Fund, 2014. "Republic of Korea: Staff Report for the 2013 Article IV Consultation," IMF Staff Country Reports 2014/101, International Monetary Fund.
    3. International Monetary Fund, 2013. "Slovak Republic: 2013 Article IV Consultation," IMF Staff Country Reports 2013/262, International Monetary Fund.
    4. International Monetary Fund, 2014. "Slovak Republic: Staff Report for the 2014 Article IV Consultation," IMF Staff Country Reports 2014/254, International Monetary Fund.
    5. Alan J. Auerbach, 1994. "The US Fiscal Problem: Where We Are, How We Got Here, and Where We're Going," NBER Chapters, in: NBER Macroeconomics Annual 1994, Volume 9, pages 141-186, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    fiscal indicators; no-policy-change scenario; consolidation effort; structural balance; net worth; fiscal gap indicators;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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