EIZ Working Papers, No. 1, 2009.
Preliminary communication
Cyclically Adjusted Budget Balance: The Case of Croatia
Sandra Švaljek
Maruška Vizek
Andrea Mervar
Abstract
Cyclically adjusted government budget balance has often been used in the evaluation of fiscal stance. It indicates how much room fiscal authorities have to act anticyclically. The main idea is to separate temporary (cyclical) effects on the budget from those caused by discretionary measures of fiscal authorities. In this paper, after reviewing the concept, its applications and various methodological approaches, the size of cyclically adjusted budget balance is estimated in the case of Croatia for the period 1995:1q-2008:3q. Thereby, the ECB methodology is implemented and it is assumed that cyclically sensitive budget elements include income tax, profit tax, VAT, excise duties, social security contributions and unemployment benefits. The elasticities of cyclically sensitive budget components, with respect to their macroeconomic bases, are calculated with an error-correction model. The results of the exercise indicate that both periods of pro- and anticyclical fiscal policies have been present in the analyzed period with the restrictive and procyclical policy prevailing in the recent years.
Keywords
fiscal policy; government budget; cyclical adjustment; Croatia
Hrčak ID:
71598
URI
Publication date:
15.6.2009.
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