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The new ESCB methodology for the calculation of cyclically adjusted budget balances: an application to the Portuguese case

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  • Cláudia Braz
  • Maria Manuel Campos
  • Sharmin Sazedj

Abstract

The analysis of public finance developments relies, amongst other indicators, on estimates of cyclically adjusted budget balances (CABs), which correct headline government balances for business cycle fluctuations. The European System of Central Banks (ESCB) endorsed in late 2018 a new aggregate methodology for the calculation of CABs, developed by Bouabdallah et al., 2019. This paper presents the application of this new cyclical adjustment methodology to the Portuguese case, providing details on the calculation of the underlying fiscal-to-base and base-to-output elasticities. Additionally, it describes the output gap estimations used to assess the cyclical position of the economy. The paper also presents the analytical tool developed by Bouabdallah et al., 2019 to disentangle the drivers of structural fiscal developments, providing details on its application to Portugal.
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Suggested Citation

  • Cláudia Braz & Maria Manuel Campos & Sharmin Sazedj, 2019. "The new ESCB methodology for the calculation of cyclically adjusted budget balances: an application to the Portuguese case," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
  • Handle: RePEc:ptu:bdpart:e201907
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    References listed on IDEAS

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    1. Kremer, Jana & Rodrigues Braz, Cláudia & Brosens, Teunis & Langenus, Geert & Momigliano, Sandro & Spolander, Mikko, 2006. "A disaggregated framework for the analysis of structural developments in public finances," Working Paper Series 579, European Central Bank.
    2. Grzegorz Poniatowski & Mikhail Bonch-Osmolovskiy & Misha V. Belkindas, 2017. "Study and Reports on the VAT Gap in the EU-28 Member States: 2017 Final Report," CASE Network Reports 0492, CASE-Center for Social and Economic Research.
    3. Robert Price & Thai-Thanh Dang & Jarmila Botev, 2015. "Adjusting fiscal balances for the business cycle: New tax and expenditure elasticity estimates for OECD countries," OECD Economics Department Working Papers 1275, OECD Publishing.
    4. European Commission, 2017. "Taxation trends in the European Union: 2017 edition," Taxation trends 2017, Directorate General Taxation and Customs Union, European Commission.
    5. Bouthevillain, Carine & Cour-Thimann, Philippine & van de Dool, Gerrit & Hernández de Cos, Pablo & Langenus, Geert & Mohr, Matthias & Momigliano, Sandro & Tujula, Mika, 2001. "Cyclically adjusted budget balances: an alternative approach," Working Paper Series 77, European Central Bank.
    6. Grzegorz Poniatowski & Mikhail Bonch-Osmolovskiy & Misha V. Belkindas, 2017. "Study and Reports on the VAT Gap in the EU-28 Member States: 2017 Final Report," CASE Reports 0492, CASE-Center for Social and Economic Research.
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    Cited by:

    1. Cláudia Duarte & José R. Maria & Sharmin Sazedj, 2021. "Cyclical outputs and structural budget balances," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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