IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Structural Budget Deficits and Sustainability of Fiscal Positions in the European Union

Listed author(s):
Registered author(s):

    According to the Pact for Stability and Growth (PSG), in the medium term the net deficit should be close to balance or in surplus. We question the use of the net deficit as the only medium-term budgetary objective and as the main indicator for the assessment of fiscal policy. Hence, for assessing the short-term fiscal stance, we propose to analyze cyclically adjusted budget balances, whereas an assessment of sustainability of fiscal positions in the medium-term should be based on structural primary gaps. The OECD, the EU and the IMF calculate structural budget balances by subtracting the balance of several cyclical revenue components and only one cyclical expenditure component from the overall net deficit, under the assumption of constant output elasticities. By means of a bootstrapping simulation we demonstrate that the assumptions of these traditional methods are too restrictive. They do not even allow to determine the sign of the cyclical balances for the EU-countries. To estimate structural budget balances, we suggest an alternative approach which is based on a statistical concept and identifies structural balances as a smooth trend. Medium term sustainability of fiscal policy is analysed within the concept of structural primary gaps. This indicator shows to what extent the current structural primary balance deviates from the primary surplus that stabilizes the debt to GDP ratio. Again, the meaning of structural is based on the same statistical concept of trend extraction. For the EU-countries structural primary gaps are calculated, referring to the net debt and gross debt concept. According to the gross debt concept and based on forecasts of the OECD Economic Outlook (December 1997), fiscal policy of all EU-countries can be considered as sustainable at least in 1999. Even if fiscal policy is already deemed sustainable in the medium-term, in some of the EU-countries structural balances will have to be further improved in order to bring fiscal positions close to balance or in surplus. Only then, compliance with the provisions of the PSG is assured.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Paper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 26.

    in new window

    Length: 62
    Date of creation: 28 May 1998
    Handle: RePEc:onb:oenbwp:26
    Contact details of provider: Postal:
    P.O. Box 61, A-1011 Vienna, Austria

    Phone: +43/1/404 20 7205
    Fax: +43/1/404 20 7299
    Web page:

    More information through EDIRC

    Order Information: Postal: Oesterreichische Nationalbank, Economic Studies Division, c/o Beate Hofbauer-Berlakovich, POB 61, A-1011 Vienna, Austria

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:onb:oenbwp:26. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Markus Knell and Helmut Stix)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.