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I am grateful to Robert Corker, Anastassios Gagales, and Kornelia Krajnyak for helpful comments and suggestions.
See chapter one on “Switzerland’s Long-Run Growth Slowdown” by A. Jaeger in: Switzerland Selected Issues and Statistical Appendix, April 1998.
Between 1993 and 1997 the federal government paid a net SwF 4.3 billion (1.1 percent of GDP) into the unemployment insurance fund. A similar amount was provided by the cantons.
The HP-filter is a widely used method for decomposing time series data into a trend and a cyclical component. It has the advantage of providing a transparent and objective measure of potential output. However, the authorities are open to alternative approaches if a superior, yet still transparent, method for calculating the output gap can be found.
The balance of the fictional account is determined as the accumulated difference between revenue and expenditures deviations minus discrete adjustments At any prior year. The overall balance is given as:
The qualified majority requirement is waived if the proposed expenditures exceed the ceiling by less than 0.5 percent.
Deficit and debt objectives are unequivocally linked through the flow-stock identity that fiscal deficits are equal to changes in the debt level.
The Stability and Growth Pact was adopted in 1997 and is geared towards fiscal discipline among the member countries of the European Monetary Union.
The debt ceiling for European Monetary Union was set at 60 percent of GDP. While this level serves as a reference value for a sustainable fiscal position with a steady state budget deficit of 3 percent and a nominal GDP growth rate of 5 percent, the EU has never officially referred to the 60 percent ceiling as an optimal level of public debt.
The rule assumes that the output-gap elasticity of revenue is equal to one which roughly corresponds to the actually observed revenue response to changes in the real growth rate.
The maximum output gap of 5 percent is based on annual real GDP data covering the period 1970–1999 using a standard smoothness parameter (λ=100). As discussed in the following secftion variations in the smoothness parameter can increase or decrease the measured output gap. Production function estimates of potential output give a somewhat wider range of output gaps over the same period.
For example, much of the volatility of revenues in Figure 7 stems from a high variability of receipts from the stamp duty and the withholding tax.
Revenue forecast errors are approximated by the percentage difference between the budgeted and actual revenue receipts in a given year. Average percentage deviations of the budgeted from actual revenue were 2.8 percent of revenue in the period 1970–1999.
Each estimate of the output gap is based on historical data plus data for the next five years.