Measuring cyclically-adjusted budget balances for OECD countries
An important tool in the analysis of fiscal policy is the distinction between
structural and cyclical components of the budget balance. This paper describes
work undertaken to re-estimate and re-specify the elasticities underlying the
Economics Department's calculations of cyclically-adjusted budget balances.
Account is taken of tax reforms introduced since the previous updating
exercise. A number of methodological innovations have been introduced to better
account for the lags between taxes and activity and to ensure greater
cross-country consistency in the estimates. The methodology underlying cyclical
adjustment of expenditures has also been reviewed. Finally, the country
coverage has been extended. The overall results are broadly consistent with the
previous set of estimates. The sensitivity of government net lending to a 1
percentage point change in the output gap remains at around 0.5% of GDP for
OECD economies on average.
