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The new ESCB methodology for the calculation of cyclically adjusted budget balances: an application to the Portuguese case

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  • Cláudia Braz
  • Maria Manuel Campos
  • Sharmin Sazedj

Abstract

The analysis of public finance developments relies, amongst other indicators, on estimates of cyclically adjusted budget balances (CABs), which correct headline government balances for business cycle fluctuations. The European System of Central Banks (ESCB) endorsed in late 2018 a new aggregate methodology for the calculation of CABs, developed by Bouabdallah et al., 2019. This paper presents the application of this new cyclical adjustment methodology to the Portuguese case, providing details on the calculation of the underlying fiscal-to-base and base-to-output elasticities. Additionally, it describes the output gap estimations used to assess the cyclical position of the economy. The paper also presents the analytical tool developed by Bouabdallah et al., 2019 to disentangle the drivers of structural fiscal developments, providing details on its application to Portugal.

Suggested Citation

  • Cláudia Braz & Maria Manuel Campos & Sharmin Sazedj, 2019. "The new ESCB methodology for the calculation of cyclically adjusted budget balances: an application to the Portuguese case," Working Papers w201907, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w201907
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    1. Grzegorz Poniatowski & Mikhail Bonch-Osmolovskiy & Misha V. Belkindas, 2017. "Study and Reports on the VAT Gap in the EU-28 Member States: 2017 Final Report," CASE Network Reports 0492, CASE-Center for Social and Economic Research.
    2. European Commission, 2017. "Taxation trends in the European Union: 2017 edition," Taxation trends 2017, Directorate General Taxation and Customs Union, European Commission.
    3. Bouthevillain, C. & Van Den Dool, G. & Langenus, G. & Mohr, M. & Momigliano, S. & Tujula, M. & De Cos, P.H. & Cour-Thimann, Philippine, 2001. "Cyclically Adjusted Budget Balances: an Alternative Approach," Papers 77, Quebec a Montreal - Recherche en gestion.
    4. Kremer, Jana & Rodrigues Braz, Cláudia & Brosens, Teunis & Langenus, Geert & Momigliano, Sandro & Spolander, Mikko, 2006. "A disaggregated framework for the analysis of structural developments in public finances," Working Paper Series 579, European Central Bank.
    5. Cláudia Duarte & José R. Maria & Sharmin Sazedj, 2019. "Potential output: How does Portugal compare with the euro area over the last 40 years?," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    6. Cláudia Braz & Sharmin Sazedj & Maria Manuel Campos, 2019. "The new ESCB methodology for the calculation of cyclically adjusted budget balances: an application to the Portuguese case," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    7. Robert Price & Thai-Thanh Dang & Jarmila Botev, 2015. "Adjusting fiscal balances for the business cycle: New tax and expenditure elasticity estimates for OECD countries," OECD Economics Department Working Papers 1275, OECD Publishing.
    8. Gilles Mourre & Caterina Astarita & Savina Princen, 2014. "Adjusting the budget balance for the business cycle: the EU methodology," European Economy - Economic Papers 2008 - 2015 536, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    9. Pedro Duarte Neves, 2001. "The Use of Cyclically Adjusted Balances at Banco de Portugal," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    10. Grzegorz Poniatowski & Mikhail Bonch-Osmolovskiy & Misha V. Belkindas, 2017. "Study and Reports on the VAT Gap in the EU-28 Member States: 2017 Final Report," CASE Reports 0492, CASE-Center for Social and Economic Research.
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    Cited by:

    1. Cláudia Braz & Maria Manuel Campos & Sharmin Sazedj, 2019. "The new ESCB methodology for the calculation of cyclically adjusted budget balances: an application to the Portuguese case," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    2. Eugene Msizi Buthelezi & Phocenah Nyatanga, 2023. "Time-Varying Elasticity of Cyclically Adjusted Primary Balance and Effect of Fiscal Consolidation on Domestic Government Debt in South Africa," Economies, MDPI, vol. 11(5), pages 1-27, May.
    3. Eugene Msizi Buthelezi & Phocenah Nyatanga, 2023. "Threshold of the CAPB That Can Be Attributed to Fiscal Consolidation Episodes in South Africa," Economies, MDPI, vol. 11(6), pages 1-26, May.
    4. Cláudia Duarte & José R. Maria & Sharmin Sazedj, 2021. "Cyclical outputs and structural budget balances," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    5. Cláudia Braz & Maria Manuel Campos, 2021. "Challenges in measuring fiscal effects," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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