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Built on sand: The structural deficit in the ups and downs of the economy

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  • Christian Breuer
  • Thiess Büttner

Abstract

The sudden worsening in the durability of public finance - from a nearly balanced budget in 2007 to an estimated cyclically adjusted deficit of 4.5% for 2010 - raises the question of the validity of the so-called structural deficit. For the period 1996-2009 a clear connection exists between cyclical development and the structural deficit determined by standard methods. To be sure, this connection can be explained in part by changes in taxation policies. Nevertheless, the suspicion arises that the structural deficit is overestimated in economically weak phases and underestimated in upswing phases.

Suggested Citation

  • Christian Breuer & Thiess Büttner, 2010. "Built on sand: The structural deficit in the ups and downs of the economy," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 63(11), pages 28-31, June.
    • Handle: RePEc:ces:ifosdt:v:63:y:2010:i:11:p:28-31
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    References listed on IDEAS

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    1. Nathalie Girouard & Christophe André, 2005. "Measuring Cyclically-adjusted Budget Balances for OECD Countries," OECD Economics Department Working Papers 434, OECD Publishing.
    2. Thiess Büttner & Anita Dehne & Gebhard Flaig & Oliver Hülsewig & Peter Winker, 2006. "Calculation of GDP elasticities of public expenditure and revenue for forecasting purposes and a discussion of their volatility: Study commissioned by the Bundesministerium der Finanzen (06/05)," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 28.
    3. Projektgruppe Gemeinschaftsdiagnose, 2010. "The Recovery Continues - Considerable Risks Remain," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 63(08), pages 03-78, April.
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    Cited by:

    1. Christian Breuer, 2012. "Structural consolidation without fiscal policy – the results of the tax revenue estimate of May 2012," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 65(10), pages 38-43, May.
    2. Projektgruppe Gemeinschaftsdiagnose, 2010. "Economic Upswing in Germany - Major Decisions Facing Economic Policy," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 63(20), pages 03-61, October.

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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