Structural Balances and All That: Which Indicators to Use in Assessing Fiscal Policy

Author/Editor:

Nigel A Chalk

Publication Date:

June 1, 2002

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Structural indicators of a country's fiscal position are regularly used as estimates of both discretionary changes in fiscal policy and the effect of fiscal policy on aggregate demand. This paper looks at such indicators and evaluates, from a theoretical standpoint and from empirical case studies, their usefulness in measuring the size of discretionary policy action or fiscal demand stimulus. Two propositions are examined in detail: first, that the change in the primary structural balance provides a better indicator of discretionary fiscal policy than does the change in the primary balance; and second, that the change in the structural balance is a good indicator of the demand stimulus arising from changes in the fiscal position. In addition, the paper discusses measurement problems relating to structural balances and the use of the fiscal impulse as an alternative to structural balances.

Series:

Working Paper No. 2002/101

Subject:

Expenditure Fiscal policy Fiscal stance Macro-fiscal analysis Potential output Production

English

Publication Date:

June 1, 2002

ISBN/ISSN:

9781451852523/1018-5941

Stock No:

WPIEA1012002

Pages:

31

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