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Senior Economist, IMF Office in Europe. This paper was initially prepared for a Banca d’ltalia Workshop on Indicators of Structural Budget Balances, Perugia, Italy, November 26-28, 1998. The author thanks Mikis Hadjimichael, Ioannis Halikias, George Kopits, Jean Le Dem, Selma Mahfouz, and Steve Symansky for very helpful comments on an earlier draft. The author also gratefully acknowledges the able research assistance of Amina Elmi and Randa Sab. Naturally, any errors remain the author’s sole responsibility.
The structural budget balance is often characterized as reflecting discretionary—rather than non-discretionary—policies. Such a distinction is problematic, however, insofar as what constitutes a discretionary action is not always obvious. (IMF (1998a), Box 2.4).
For a number of years, the IMF also produced a measure of the thrust of fiscal policy--the fiscal impulse measure--which was designed to provide an indication of the short ran impact of fiscal policy on aggregate demand.
If output follows a random walk, neither a deterministic trend nor business cycles can be identified.
This method is used by the European Commission in the calculation of structural budget balances in the European Union. See European Commission (1995).
For a detailed review of the Fund’s approach to the estimation of potential output, see De Masi (1997).
The figures shown in the last column of Table 3 indicate the share of corporate tax revenues collected in year t. Thus, for instance, a lag of 0.7 indicates that 70 percent of the corporate revenue collected in year t is for the tax liability in the same year, and the remaining 30 percent is collected in year t+1.
A unitary elasticity of unemployment insurance benefits with respect to the gap between the actual rate of unemployment and the NAIRU is thus assumed implicitly.
An expansionary fiscal stance will tend to put upward pressure on real and--in part via effects on inflation expectations--nominal interest rates.