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
:ʃʃʃfiʧrkʃrf^^.....bo[
-1
-2
-3 -
-4
Cyclical component due to discretionary policy (gamma)
110
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