Proceedings from the ECFIN Workshop "The budgetary implications of structural reforms" - Brussels, 2 December 2005

Definition of reform event

Any classification of significant reform events is necessarily arbitrary. The selection approach
followed here is to choose the critical level of change to qualify as significant reform in such a
way that at least ten per cent of all country year combinations are included.48 Hence, this analysis
implies a focus on relatively substantial reform events. See table A-2 in the appendix for the
resulting list of reform periods.

The following variables representing budgetary and business cycle developments and the
economic expectations of private households and business are included in the testing, where fiscal
and business cycle data originate from the OECD Economic Outlook database whereas sentiment
indicators are calculated as annual averages of monthly data from the European Commission for
EU countries and from national sources elsewhere. Sentiment indicators are employed after
standardization:

Fiscal variables (notation following OECD Economic Outlook database):

Deficits and debt:

- general government net primary lending as % GDP (NLGXQ),

- general government net primary lending cyclically adjusted as % trend GDP
(NLGXQA),

- debt-GDP-level in % (DEBT)

Government expenditures:

-         general government total primary expenditure as % GDP (YPGXQ)

-          general government total primary expenditure cyclically adjusted as % trend GDP

(YPGXQA)

- social security benefits paid by government as % GDP (SSPGQ)

Government revenues:

- general government total revenue as % GDP (YRGTQ)

- general government total revenues cyclically adjusted as % trend GDP (YRGQA)

⁴⁸ The algorithm results in classifying a larger share than 10 per cent of observations as reforms due to value clusters for the change in the
regulatory indicators.

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