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Structural Budget Balances: Calculation, Problems and Benefits

Author

Listed:
  • Lukas Reiss

    (Oesterreichische Nationalbank, Economic Analysis Division)

Abstract

The reform of the Stability and Growth Pact and the incorporation of “debt brake” rules into national legislation have heavily increased the importance of structural balances in economic policymaking in Europe. As defined by the European Commission, structural balances are calculated by subtracting the estimated cyclical component of government revenue and spending as well as certain temporary factors from the headline balance. Structural balance estimates can be subject to significant measurement errors, which are mainly related to uncertainties about potential output and nonlinear reactions of tax revenue to sharp changes in GDP growth. The definition of temporary factors can also cause substantial problems. While these problems do not render structural balances useless for the implementation of fiscal policy, they imply that policymakers should not aim to reach the target values for the structural balance exactly a specified each year, but rather on average over much longer time periods (unless exceptionality clauses apply). Achieving the targets on average can be ensured by using appropriately specified control accounts.

Suggested Citation

  • Lukas Reiss, 2013. "Structural Budget Balances: Calculation, Problems and Benefits," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 12-28.
    • Handle: RePEc:onb:oenbmp:y:2013:i:1:b:2
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    File URL: https://www.oenb.at/dam/jcr:a7bfaa1f-7573-44f9-9872-37b4e5aa8643/mop_2013_q1_analyses2_tcm16-254583.pdf
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    References listed on IDEAS

    as
    1. Schneider, Hilmar, 2012. "Die Beseitigung von Arbeitszeithürden als Beitrag zur Lösung des Fachkräftemangels," IZA Standpunkte 50, Institute of Labor Economics (IZA).
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    structural balance; cyclically adjusted balance; fiscal rules; fiscal policy;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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