The relationship between public balance and inflation in Europe

The study considers some of the factors determining budget balance. In particular, it investigates the relationship between budget balance and inflation. The analysis focuses on European states in the period between 1999 and 2007, and concludes that the relationship between budget balance and inflation is not demonstrable. In the literature, attempts to quantify the relationship between the two factors have faced severe difficulties. Inflation influences both the revenue side and the expenditure side of the budget, often increasing one and reducing the other at the same time. These effects might balance each other out, leaving the budget balance unchanged. --budget balance,budget deficit,inflation

Self-defeating austerity in Portugal during the Troika’s economic and financial adjustment programme

In 2011, Portugal agreed with the Troika (European Commission, European Central Bank and International Monetary Fund) to implement an economic and financial assistance programme during the period 2011-2014. One of the objectives of the programme was to guarantee the sustainability of public accounts, by setting targets for reducing the weight of the budget balance on GDP. Between 2010 and 2013, the weight of the budget deficit on GDP decreased by six percentage points. However, in that period, there was a colossal destruction of jobs and the unemployment rate grew by five percentage points. In an Input-Output framework, we show the existence of a negative relationship between the unemployment rate and the budget deficit and we revisit the concept of neutral budget balance proposed by Lopes and Amaral (2017), and also we consider the use of alternative fiscal policies and a mix of fiscal policies. In an empirical application to the Portuguese case, in 2013, we concluded that: (i) the balance of public accounts in that year would imply a very high unemployment rate; (ii) the larger the budget balance in that year, the greater the negative impact on the budget balance in 2014; and (iii) the budget balance actually verified in 2013 had a detrimental effect on the reduction of the budget deficit in 2014.info:eu-repo/semantics/publishedVersio

How does Trade openness Influence Budget Deficits?

The influence of trade openness on economic growth via budget balance is surprisingly neglected in the literature, particularly since the theoretical and empirical studies have provided a positive and robust relationship between budget balance and economic growth. In this paper, we provide theoretical and empirical explanations about the way that trade openness influences budget balance by distinguishing the effects of natural openness from those of trade policy. The panel data analysis focuses on 66 developing countries for which we have the required data. We find that, theoretically and empirically, the effects of trade openness on budget balance through its effect on the instability of government revenue is quite clear: trade openness increases a country's exposure to external shocks (whether it is due to natural openness or to trade policy). This enforces the negative impacts of the instability of term of trade on budget balance. We also find that trade openness affects budget balance through many others channels (corruption, inequalities, etc). In this case, the additional effects on budget position of natural openness and trade policy are opposed: trade policy seems enhance budget surpluses, on the contrary, natural openness seems deteriorate budget deficits.panel data analysis., developing countries, Instability of term of trade, budget deficits, natural openness, outward-looking policy, trade openness

A New Method for Constructing a Cyclically Adjusted Budget Balance: the Case of Sweden

In this paper, we discuss a new method for constructing a cyclically adjusted budget balance. We use the method to evaluate the budget balance for Sweden during the period 1991–2005. Traditionally, methods for cyclical adjustment have focused on the output gap. In this paper we also adjust for deviations of tax bases from their trend levels. Furthermore, we adjust for effects of the unemployment gap on government spending. For Sweden, we find that these additional adjustments have a significant impact on the cyclically adjusted budget balance, especially for the periods 1992–1995 and 2000–2001.Fiscal Policy; Cyclically Adjusted Budget Balance

Estimating The Cyclically Adjusted Budget Balance For The Romanian Economy. A Robust Approach

This paper provides estimates for the structural fiscal balance for the Romanian economy over the period 1998-2008. The calculation of the structural fiscal balance is useful, since it provides a clear picture of the fiscal stance of the economy and it is essential in the context of a medium term fiscal framework. In order to ensure the robustness of the estimation, we employed two methodologies for the computation of the elasticities of various categories of government revenues and expenditures with respect to the output gap. The two approaches issued similar results, the overall average budget sensitivity being equal to 0.285 and 0.290, respectively. The amplitude of the cyclical budget balance is around 1% of GDP. After constant improvement, the structural balance worsened in 2008, due mainly to the current crisis.fiscal policy, structural fiscal balance, cyclical budget balance, business cycle, tax elasticity

A NEW LOOK AT NET BALANCES IN THE EUROPEAN UNION’S NEXT MULTIANNUAL BUDGET. Bruegel Working Paper Issue 10 12 December 2019

Whenever the European Union’s budget is discussed, much of the political focus is on net balances – whether countries pay in more than they receive – rather than on the broader overall positive effects of EU spending. The largest net contributor countries have sought to limit their contributions, leading to the build-up of an ad-hoc, complex, opaque and regressive system of revenue corrections. To inform debate on the 2021-2027 EU budget, I estimated the impact on net balances of the 2018 European Commission multiannual budget proposal, under three scenarios: elimination of rebates for all of the 2021-2027 new budget period, gradual elimination of rebates and non-elimination of rebates. These estimates were done on the basis of the EU’s ‘operating budgetary balance’ indicator, and on the basis of a new and broader indicator, the ‘net direct balance’. The calculation also takes into account the estimated net contribution of the United Kingdom to the 2021-2027 EU budget based on the draft EU-UK withdrawal agreement. Under the baseline scenario of the Commission’s proposal, those member states that currently benefit from rebates would face between 0.01 percent of GNI and 0.06 percent of GNI increases in their net contributions to the EU budget, measured by the EU’s operating budgetary balance indicator. Meanwhile, central and eastern European member states that received several percent of their GNI as net payments from the EU in 2014-2020 would face significant reductions, though they would still receive net payments of about two percent of their GNI in 2021-2027. The methodology in this paper can be easily applied to estimate the net balance implications of any new MFF proposal

Relation between Cyclically Adjusted Budget Balance and Growth Accounting Method of Deriving ‘Net Fiscal Effort’

This paper deals with the growth accounting method used for derivation of so called net fiscal effort. Net fiscal effort can then provide a clue whether fiscal policy is expansionary or not and together with the data about economic performance can answer the question of pro- or anti-cyclicality of fiscal stance. Traditionally, answer to such questions has been provided via cyclically adjusted budget balance measure. I argue that relatively computational intensive and data demanding process of estimation of cyclically adjusted budget balance can be without significant loss of information replaced by simple growth accounting method. I argue that in general case, answers provided via growth accounting method will not differ widely from the conclusions provided via cyclically adjusted budget balance. I then illustrate on Czech fiscal data use of growth accounting and compare the outcomes of both methods. Conclusions reached in the empirical part fit nicely conclusions of the theoretical part of the paper.Expansionary/Contractionary Fiscal Policy; Cyclically Adjusted Budget Balance; Growth Accounting; Net Fiscal Effort

Analysis of the Relationship between State Budget and Trade Balance of Libyan Economy (Period: 2000 – 2008)

The subject of the relationship between state budget and trade balance is important as economic subject, not only at the level of developing countries, but also at of advanced ones, too. Such importance emerged clearly when 1980s witnessed in United States of America a deficit in both state budget and trade balance, which was called at that time as the twin or dual deficit. We can say that the analysis of relationship between state budget and trade balance states the extent of mutual effect between financial and trade policies of any economy, namely; any change in the outcome of either one may affect the other in the same degree. To put in other words, the instruments of financial policy represented by total incomes and total expenditures can affect the trade balance through the movement of exports and imports and vice-versa. One tracing properties and features of Libyan economy may remark its dependence greatly on the public sector in financing developmental projects and making development generally, as well as its dependence on incomes to supply consumer and investment goods. Further, it depends in collecting its incomes of foreign currency on exports of chief source which is crude oil. So, study and analysis of relationship between state budget and trade balance of Libyan economy means to study and analyze relationship of public sector through the state budget, with the external sector expressed as the external trade through trade balance. The paper was processed within the framework of the Research Project of MSM 6046070906 "The economics of Czech agricultural resources and their effective use within the framework of multifunctional agri-food systems".State budget, trade balance, Libya, trade policy, fiscal policy, Financial Economics, International Relations/Trade, GA, IN,

The Relation Between the Cyclically Adjusted Budget Balance and the Growth Accounting Method of Deriving Net Fiscal Effort

This paper deals with the growth accounting method used to derive “net fiscal effort”. Net fiscal effort can then provide a clue about whether fiscal policy is expansionary or not, and, together with data on economic performance, can answer the question of the pro- or anti-cyclicality of the fiscal stance. Traditionally, the answer to such questions has been provided via the cyclically adjusted budget balance. I argue that the relatively computationally intensive and data demanding process of estimation of the cyclically adjusted budget balance can be replaced by the simple growth accounting method without significant loss of information. I argue that in the general case, the answers provided via the growth accounting method will not differ widely from the conclusions provided via the cyclically adjusted budget balance. I then illustrate the use of growth accounting on Czech fiscal data and compare the outcomes of both methods. The conclusions reached in the empirical part fit nicely with the conclu sions of the theoretical part of the paper.expansionary/contractionary fiscal policy, cyclically adjusted budget balance, growth accounting, net fiscal effort

Automatic Fiscal Stabilisers: Implications for New Zealand

Automatic fiscal stabilisers, or the cyclical components of the budget balance, are larger in New Zealand than in the average OECD country, reflecting both higher sensitivity to the conomic cycle, and a more volatile cycle. Fiscal vigilance is especially important in New Zealand. Large projected operating surpluses could easily disappear if lower economic outcomes are mistakenly assumed to be cyclical. But, automatic stabilisers are difficult to use in a policy framework as empirical estimates of the cyclical budget balance vary significantly. While the estimated trend in automatic stabilisers is broadly similar, the level varies significantly, such that at any point in time a 'structural surplus' may be dependant on the estimation method.automatic fiscal stabilisers; economic cycle; cyclical budget balance; expenditure and tax elasticities