in 1996-1997 in order to fulfil the fiscal Maastricht criteria. A further comparatively huge
consolidation package was launched in 2000/2001 with the goal of bringing the general
government budget to a close to balance position. While these events resulted in an
improvement of the core primary balances, they also show up in the core revenue or core
expenditure ratio, respectively, or in both, depending on the composition of the
consolidation packages.
The tremendous structural crisis that Austria faced at the beginning of the 1980s is also
reflected in the development of the core primary balance. The worsening of the primary
balance at the beginning of the 1990s was, however, caused, by the implementation of
social policy measures, i.e. by extending the entitlement period for maternity leave
payments from one to two years and in addition by implementing long-term care benefits
without adequate financing measures.
4.5 Conclusions
Our estimation results so far highlight that, first of all, the overall effect of fiscal policy
(the automatic stabilizer and discretionary policy component) in Austria has been slightly
counter-cyclical. However, our estimates also indicate that discretionary policy in
response to the business cycle has been pro-cyclical. Given the federal structure enabling
the provincial and local governments to implement conflicting fiscal strategies, and given
the fact that the central government budget was influenced (at least on average) by the
rule that the cash deficit should not exceed the threshold of 2.5% of GDP, this result does
not really come as a great surprise. Second, and more interestingly, there is the fact that in
particular the revenue side seems to be prone to pro-cyclical responses whereas the
relatively minor impact of the automatic stabilizers on the expenditure side seems to be
completely neutralised. Finally - and this finding is generally in line with other studies -
our estimates imply that during economic downturns the overall impact of fiscal policy
seems to be counter-cyclical, whereas in periods of economic upturn the impact of
automatic stabilisers is nearly neutralised.
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