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Relation between Cyclically Adjusted Budget Balance and Growth Accounting Method of Deriving ‘Net Fiscal Effort’

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This paper deals with the growth accounting method used for derivation of so called net fiscal effort. Net fiscal effort can then provide a clue whether fiscal policy is expansionary or not and together with the data about economic performance can answer the question of pro- or anti-cyclicality of fiscal stance. Traditionally, answer to such questions has been provided via cyclically adjusted budget balance measure. I argue that relatively computational intensive and data demanding process of estimation of cyclically adjusted budget balance can be without significant loss of information replaced by simple growth accounting method. I argue that in general case, answers provided via growth accounting method will not differ widely from the conclusions provided via cyclically adjusted budget balance. I then illustrate on Czech fiscal data use of growth accounting and compare the outcomes of both methods. Conclusions reached in the empirical part fit nicely conclusions of the theoretical part of the paper.

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Paper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 2006/05.

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Length: 13 pages
Date of creation: Apr 2006
Date of revision: Apr 2006
Handle: RePEc:fau:wpaper:wp2006_05

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Keywords: Expansionary/Contractionary Fiscal Policy; Cyclically Adjusted Budget Balance; Growth Accounting; Net Fiscal Effort;

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  1. Bouthevillain, C. & Van Den Dool, G. & Langenus, G. & Mohr, M. & Momigliano, S. & Tujula, M. & De Cos, P.H. & Cour-Thimann, Philippine, 2001. "Cyclically Adjusted Budget Balances: an Alternative Approach," Papers 77, Quebec a Montreal - Recherche en gestion.
  2. David Pearce, 2004. "Does European Union Environmental Policy Pass a Cost–Benefit Test?," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 5(3), pages 115-137, July.
  3. Jürgen von Hagen & Andrew Hughes Hallett & Rolf Strauch, 2001. "Budgetary Consolidation in EMU," European Economy - Economic Papers 148, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  4. Bronwyn H. Hall & Raffaele Oriani, 2004. "Does the Market Value R&D Investment by European Firms? Evidence from a Panel of Manufacturing Firms in France, Germany, and Italy," NBER Working Papers 10408, National Bureau of Economic Research, Inc.
  5. Paul Marginson & Mark Hall & Aline Hoffmann & Torsten Müller, 2004. "The Impact of European Works Councils on Management Decision-Making in UK and US-based Multinationals: A Case Study Comparison," British Journal of Industrial Relations, London School of Economics, vol. 42(2), pages 209-233, 06.
  6. Bronwyn H. HALL & Raffaele ORIANI, 2004. "Does the Market Value R&D Investment by European Firms? Evidence from a Panel of Manufacturing Firms in France," Economics Working Papers ECO2004/13, European University Institute.
  7. Orban, Gabor & Szapary, Gyorgy, 2004. "The Stability and Growth Pact from the perspective of the new member states," Journal of Policy Modeling, Elsevier, vol. 26(7), pages 839-864, October.
  8. Hughes Hallett, Andrew & Richter, Christian, 2004. "A Time-Frequency Analysis of the Coherences of the US Business Cycle and the European Business Cycle," CEPR Discussion Papers 4751, C.E.P.R. Discussion Papers.
  9. Vladimir Bezdek & Kamil Dybczak & Ales Krejdl, 2003. "Czech Fiscal Policy: Introductory Analysis," Working Papers 2003/07, Czech National Bank, Research Department.
  10. Graham C. Hall & Patrick J. Hutchinson & Nicos Michaelas, 2004. "Determinants of the Capital Structures of European SMEs," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(5-6), pages 711-728.
  11. Paul van den Noord, 2000. "The Size and Role of Automatic Fiscal Stabilizers in the 1990s and Beyond," OECD Economics Department Working Papers 230, OECD Publishing.
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