Discussion
Jonas Fischer*
The chapter by Peter Brandner, Leopold Diebalek and Walpurga Kohler-Toglhofer
presents an unobserved component model that decomposes the budget balance into
different components, namely a “core”-, an “automatic stabiliser”-, a “discretionary
stabilization”- and a “residual” component. The method has been, for illustrative
purposes, applied to Austrian budget data but the model is easily applicable to any
country as the necessary budgetary data are readily available across countries. Indeed, the
easy applicability is one of the key advantages of the approach.
In terms of the results for Austria, they mainly confirm “conventional wisdom” in
particular in that they indicate that discretionary fiscal policy has been pro-cyclical off-
setting some of the impact of the automatic stabilisers, especially in up-turns. Below I
will concentrate my comments in this area and the implication of decomposing the
cyclical part of the budget balance into a component related to the “automatic stabilisers”
and a part related to “discretionary stabilisation.” This decomposition allows to study
whether budget policies have been counter- or pro-cyclical over and beyond what can be
ascribed to the automatic stabilisers. If pro-cyclical budget behaviour is observed, it may
be of particular interest to know whether this “bad outcome” is due active government
policies or whether it is events outside its control that is to blame? This distinction is
important in the context of the application of the revised Stability and Growth Pact where
the government's intent carries more weight than before the reform. Equally, it is an
important distinction to make when assessing failures/accomplishments of the past budget
behaviour with a view to draw conclusions on how to improve budget rules and
institutions for the future.
In this context I would like to make some comparisons between the authors
decomposition and the most commonly alternative indicator used for the same purposes,
namely the cyclically-adjusted budget balance: the CAB.64 The CAB is the nominal
budget balance adjusted with the (unobservable) estimated budget impact from the cycle.
Several international institutions estimate CABs, notably the Commission, the ECB, the
OECD and the IMF. Methods vary and the results differ on the margin across compilers
but the basic approach is the same. I will first comment on what the author's
decomposition and the CAB implies in relation to commonly used budget terms such as
the “fiscal stance”, the “structural” budget balance, the “discretionary” policy component
and the “fiscal impulse”. These budget concepts are useful to discuss various fiscal policy
issues. However, lacking alternatives, the concepts are often captured by using the CAB
across the board.
The views expressed in this chapter are those of the author and are not attributable to the European
Commission.
64
The CAB is usually estimated as: CAB = nominal budget balance to GDP - budget sensitivity to the
output gap * output gap.
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