Moving target indication: Fiscal indicators employed by the Magyar Nemzeti Bank
This study defines various fiscal indicators for different analytical purposes, adjusting for the distorting effect of creative accounting. It presents these indicators using the example of Hungary. The study abandons the general view that an identical balance is produced from the two traditional definitions of the general government deficit, as deficit indicators resulting from the flow of funds calculated as the balance of revenues and expenditures (above the line) and changes in financial assets and liabilities (below the line) may vary. Firstly, the treatment of the loss of contributions transferred to private pension funds causes a difference, as in contrast to a tax cut, this does not constitute a flow of funds, but nevertheless increases the amount of public debt. Secondly, while accrualbased accounting is justified for defining assets and liabilities, accrual-based and cash-flow recording may be applied in relation to flow of funds, depending on which is more appropriate for estimating the effect or fiscal impulse on the economy. Accrual-based accounting adjusts fluctuations in cash-flow recording, but it identifies the economic impact only if there are neither liquidity constraints nor unexpected fiscal measures in the economy. In this case namely, the economic agents do not react to cash-flow fluctuations. If, however, the economic agents are either subject to liquidity constraints or unexpected measures are taken, they are also affected by the sudden changes in cash-flows. Contrary to conventions, the study draws a distinction between the two types of deficit indicators through the introduction of different terms. It continues to define the indicator identifying flow of funds as deficit, while it terms changes in assets and liabilities as a financing requirement. On the one side, the indicator defined as deficit constitutes the basis of the calculation of the impact on the economy and external balance (‘impulse’). The composition of this fiscal impulse plays a decisive role, particularly the impulse on households and changes in indirect taxes. On the other side, the analysis of the financing requirement – that is, changes in assets and liabilities – provides the basis for determining which revenues and expenditures are deemed to be temporary and which are of a permanent (‘underlying’) nature. The study determines the categories of the augmented deficit, indicating flow of funds, and the augmented financing requirement, measuring changes in financial assets and liabilities, on the basis of the IMF method for filtering the effects of creative accounting. Statistical recording, namely, needs to be augmented with the financial requirement of organisations conducting quasi-fiscal operations and the simultaneously accumulating quasi-fiscal debt. The ‘one-off’ capital transfer related to the subsequent assumption of this quasi-fiscal debt needs to be filtered out. In our experience, the augmented deficit has advantage of being consistent in a macroeconomic sense and methodologically more stable than the statistical deficit, as the latter frequently requires revisions. Naturally, the actual figures of the augmented deficit may change to a certain degree, as the analytical adjustments need to augment data with estimates in the case of the quasi-fiscal operations and creative accounting. As a favourable change in relation to the data requirement, from 2010 theofficial budget accounting includes public investments which are statistically recorded as private investments.
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- Gábor P. Kiss, 2007. "One-off and off-budget items: An alternative approach," MNB Conference Volume, Magyar Nemzeti Bank (the central bank of Hungary), vol. 1(1), pages 18-27, December.
- Tomasz Jedrzejowicz & Gabor Kiss & Jana Jirsakova, 2009. "How to measure tax burden in an internationally comparable way?," National Bank of Poland Working Papers 56, National Bank of Poland, Economic Institute.
- Laurent Paul & Christope Schalck, 2007. "Transfers to the government of public corporation pension liabilities: The French case study," MNB Conference Volume, Magyar Nemzeti Bank (the central bank of Hungary), vol. 1(1), pages 72-80, December.
- Gabor P Kiss, 2003. "Calculating the fiscal stance at the Magyar Nemzeti Bank," BIS Papers chapters, in: Bank for International Settlements (ed.), Fiscal issues and central banking in emerging economies, volume 20, pages 140-145 Bank for International Settlements.
- P. Kiss, Gábor, 2002.
"A fiskális jelzőszámok új megközelítésben
[A new approach to fiscal index numbers]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 292-319.
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