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- Does The Structural Budget Balance Guide Fiscal Policy Pro-Cyclically? Evidence From The Finnish Great Depression Of The 1990s
Does the Structural Budget Balance Guide Fiscal Policy Pro-Cyclically? Evidence from the Finnish Great Depression of the 1990s
External Authors
Kuusi, T
Related Themes
Macro-Economic Dynamics and PolicyJEL Code
E62, H60
Journal
National Institute Economic Review
Publisher
Sage Publications, London
External Resources
http://journals.sagepub.com/doi/full/10.1177/002795011723900111
Issue
239
In this article, I evaluate the challenges related to the European Commission's output gap method of calculating the structural budgetary position, and assess its bottom-up alternatives in the EU's fiscal framework using the Finnish data for the years 1984–2014. The results reinforce the impression of the limited capacity of the output gap method to predict cyclical changes in real time and suggest that using the output gap method to steer fiscal policy tends to lead to a procyclical policy (stimulus in upturns and austerity in downturns). The bottom-up assessment methods that are based on discretionary fiscal policy measures appear to work better, and using them to steer fiscal policy could make the policy more effective.
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