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The Expenditure Benchmark: complex and unsuitable for Independent Fiscal Institutions

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  • Carlos Fonseca Marinheiro

Abstract

The Expenditure Benchmark (EB) is an indicator for the evolution of public expenditure, introduced in 2011 in the already complex European fiscal rules framework. Its application has been increasingly promoted by the European Commission, and most existing proposals to reform the EU fiscal rules aim to keep it. However, the EB is not a substitute for the structural balance, not only because it requires the later as an input, but also because the EB calculation demands some of the unobservable variables heavily criticised in the structural balance. The EB indicator is quite complex and not suitable for the use at national level by the Independent Fiscal Institutions – that monitor compliance with national fiscal rules – as it relies on the European Commission’s data inputs and judgement not available in real-time. This paper argues for more transparency and for a simplification of this indicator to reduce the reliance on non-observable variables.

Suggested Citation

  • Carlos Fonseca Marinheiro, 2020. "The Expenditure Benchmark: complex and unsuitable for Independent Fiscal Institutions," CFP Occasional Papers 02/2020, Portuguese Public Finance Council.
    • Handle: RePEc:alf:opaper:2020-02
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    File URL: https://www.cfp.pt/en/publications/other-publications/the-expenditure-benchmark-complex-and-unsuitable-for-independent-fiscal-institutions
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    More about this item

    Keywords

    Expenditure benchmark; Independent Fiscal Institutions; EU fiscal rules; Stability and Growth Pact;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems

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