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

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.