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Toglhofer, 2005), which set a threshold for the cash deficit of the federal government at a
level of 2.5% of GDP.

In a next step we ask whether cyclically adjusted spending and revenues (as a share of
nominal potential GDP) react in a specific pro- or counter-cyclical manner. Our
estimation results indicate a relatively strong pro-cyclical discretionary response of the
cyclically adjusted revenues to the cycle (see Figure 4.5 and 4.6).

Figure 4.3 Results for the Primary Balance

^^^core balance: nu ----actual balance            core balance ±1.96*std



—— reaction to cycle:gamma----EC automatic stabilizer: alpha --------reaction to cycle ±196*std -------


I           core balance: nu — — — — EC cyclically adj.balance (based on potential GDP)

Figure 4.4 Decomposition of the Primary Balance



core discretionary policy: eta -----core dscretionary policy ±1.96*std


Core component (nu)
UC model



Cyclical component due to automatic stabilizer (alpha)

EC services


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-1


-2


-3 -

-4


Cyclical component due to discretionary policy (gamma)


110




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