亚开行-亚洲发展中国家结构预算平衡的估算（英）

ESTIMATINGSTRUCTURAL

BUDGETBALANCES

INDEVELOPINGASIA

JoãoTovarJalles

NO.719

ADBECONOMICS

April2024

WORKINGPAPERSERIES

ASIANDEVELOPMENTBANK

ADBEconomicsWorkingPaperSeries

EstimatingStructuralBudgetBalancesinDevelopingAsia

JoãoTovarJalles

No.719|April2024

JoãoTovarJalles(joaojalles@)isasenior

associateprofessorofeconomicsattheLisbonSchoolofEconomicsandManagement(ISEG),UniversityofLisbon.

TheADBEconomicsWorkingPaperSeries

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ABSTRACT

Thispaperreviewsthecurrentdiscussions,methods,andpracticessurroundingtheestimationofreasonableproxiesfortheunderlyingfiscalposition,ausefulanchorforfiscalpolicy.AnempiricalapplicationtodevelopingAsianeconomiesiscarriedout.Thereisnoone-sizefitsalltypeofapproachandthesensitivityanddiscernmentregardingspecificeconomiesareimportantinvariousstages.Thechoiceofthefiltertodecomposetrendsfromcyclesmatters.Thewaytoadjustrevenuesandexpendituresenteringthecyclicallyadjustedbalancealsomatters—choicesregardingeconomy-specificvs.panelestimationsortheuseofstaticvs.time-varyingapproachesneedtobemade.Todealwithone-offoperations,anarrative-basedapproachcancomplementthesuggestedidentificationbasedonlargechangesincyclicallyadjustedgovernmentcapitaltransfers.Adiscussionofotherimportantfactorsthatcanaffecttheestimatesofstructuralbalancessuchasassetandcommoditypricesisalsoprovided.

Keywords:budgetelasticity,time-varyingestimation,trend-cycledecomposition,cyclicallyadjustedbalances,one-offfiscaloperations

JELcodes:C33,E62,H30,H60,O53

1.Introduction

Forfiscalsurveillanceandmonitoring,itisparamounttoassessthestateofpublicfinancesandfiscalpolicies,thatis,tounderstandthenatureofbudgetarydevelopments.Actualbudgetbalancesareinadequatemeasuresforthesepurposesastheyareaffectedbymultiplefactorsthatarebothtemporaryandoutsidethedirectcontrolofthe

government.

Primeamongstthesefactorsarefluctuationsineconomicactivity.Theunderstandingthateconomicfluctuations,whicharetransitoryinnature,haveontheinterpretationandevaluationoffiscaldevelopmentssupportedthenotionthatnominal

budgetscouldnotbetakenatfacevaluesincetheycombinetemporaryandpermanent

disturbances(LarchandTurrini2009).Disentanglingthetwoelementsledtothecreation

oftheconceptofthecyclicallyadjustedbudgetbalance(CAB),whichcametolivemorethan30yearsagoinaseminalcontributionbyBlanchardetal.(1990).1TheCABseekstocorrectfiscaloutcomesfortheinfluenceofcyclicalmovements.Inotherwords,theyaimatdeterminingwhatfiscalpositionwouldprevailiftheeconomyoperatedatitsfull

capacity(ECB2014).

Inadditiontotheimpactoftheeconomiccycle,otheraspectsthathavebecomeprogressivelyimportantaretheone-offmeasures.Thesearetemporarygovernmentmeasuressuchasone-offrevenues(forinstance,stemmingfromthesaleoflicensesfortelecommunication)orone-offcapitaltransfers(forinstance,financialaidtothebanking

sector).

1Infact,Brown(1956)pioneeredtheextractionoftheunderlyingbudgetbalancebycomputingthefullemploymentsurplus,thepredecessoroftheCAB.TheconceptualadvantageofpotentialGDPofpotentialoutputoverfullemploymentdidnotfacilitatethingsinpracticalterms.Thecomputationofpotentialoutputstillremainsaspeculativeissuedespitemanymethodsandapproacheshavingbeendeveloped(Section3.1).

2

Strippingtheimpactofshort-termfluctuationsandone-offsyieldwhatsomeinternationalorganizationsrefertoas“structuralbudgetbalance”(SB)(InternationalMonetaryFund[IMF])orthe“underlyingfiscalposition”(EuropeanCommission[EC]).2TheattractionoftheSBsitswithitsgoaltomeasure,atlowcost,the“true”fiscalposition

correctedoftransitorycyclicalfactors.

However,estimatesofthestructuralbalancecanbesubjectedtosignificantmeasurementserrorsastheyaresurroundedbyconsiderableuncertainty.Theseerrorsarerelatedtoaccuratelyestimatingtheoutputgap—whichisanunobservablevariable—andthenonlinearreactionsoftaxrevenuestosharpchangesinrealgrossdomesticproduct(GDP)growth.Thedefinitionoridentificationoftemporaryfactorscanalsocausedifficulties.Theseproblemscomplicatetheapplicabilityofthisconceptineconomiesthatareregularlyaffectedbysevereshocks(e.g.,weatherevents);thosethathaveaproductionstructurethatisnotsufficientlydiversifiedand,hence,rendertheeconomyhostageofcommoditycycles;orthosewhosegrowthoutlookischaracterizedbyalackofsomeanchoredpredictability.Thisreportaimstoreviewthecurrentdiscussionssurroundingtheestimationofreasonableproxiesofdiscretionaryfiscalstancebyreviewingmethodsandpractices.AnempiricalapplicationtoaselectionofdevelopingmembereconomiesoftheAsianDevelopmentBank(ADB)iscarriedoutbutfullresultsareavailableintheAppendixes.3Wecanconcludefromtheempiricalexercisesthatthereisnoone-sizefitsallanddesksensibilityandjudgmentisimportantinvariousdegrees.

Thechoiceofthefiltertodecomposetrendsandcyclesmatterswithapreferencetoavoid

2Fortheremainderofthedocument,Iwillbereferringtostructuralbalanceasthemeasurestrippedfrombothcyclicalvariationsandone-offmeasures.

3Theappendixesareavailableat

/10.22617/WPS240087-2

.

3

theoutdatedandproblematicHPfilterinfavoroftheHamilton(2018)approach.Moreover,thetakeonhowtoadjustrevenuesandexpenditureenteringtheCBorSBisparamount.Thereisaplethoraofchoicestobemade,frompriorempiricalestimationattheeconomy-specificlevel,towhethersuchanalysisshouldbedoneinastaticortime-varyingfashion,towhichsubcomponentsofrevenuesandexpendituresarelikelytofluctuatewiththecycleorbeorthogonaltoit.Furthermore,ifonethinksaboutone-offoperations,thenamorenarrative-basedapproachcancomplementtheadhocidentificationoflargechangesincyclicallyadjustedgovernmentcapitaltransfers.Finally,thereisthediscussionofotherfactorsinadditiontothecycle,suchasassetandcommodityprices,whichincludeschangesinhousingpricesandtermsoftradeadjustmentsthatcanprovetobedifficulttobereflectedinameasureoftheunderlyingfiscalposition.Ultimately,SBsareausefulanchorforfiscalpolicy,butshouldnotbe

takentooseriouslyforreal-timepolicymaking.

Theremainderofthereportisorganizedasfollows.Section2elaboratesontherationalebehindneedingameasureofcyclicallyadjustedbudgetbalances;Section3presentstheexistingmethodologiestodosocontrastingprosandconsofeachone,theso-calledaggregatedvs.disaggregatedapproaches;Section4dealswithone-offfiscaloperationsandtheissuesconcerningthepassagefromcyclicallyadjustedbalancestoameasureofunderlyingbalanceorstructuralbalance;Section5performsseveralempirical

applicationsonADBmembereconomies;andthelastsectionconcludes.

4

2.WhyDoWeNeedaMeasureoftheCyclicallyAdjustedBudgetBalanceor

StructuralBudgetBalance?

Despitetheflawsandproblems,theCAB(and/ortheSB)continuestobeoneofthemainindicatorsnecessaryforfiscalpolicyanalysis.Morespecifically,itisanimportantconcept

becauseitallows:

(i)splittingtheinfluenceofdiscretionaryfiscalpolicytoagivenchangeinthedeficitfromtheeffectoftheeconomicenvironmentwhilesimultaneouslyallowing

automaticstabilizerstooperatefreely;

(ii)evaluatingfiscalimpulses;and

(iii)assessingiffiscalpolicyinthelong-runissustainable.

On(i),thediscussionintheliteraturesurroundstheroleoffiscalpolicyin

macroeconomicstabilization.Calculatingthestructuralbalancemeanssplittingthefiscalstanceintothecyclicalandthestructuralcomponents.Moregenerally,fiscalpolicycanhelpthestabilizationofthebusinesscyclebymeansofthreedifferentchannels(Silgoner,Reitschuler,andCrespo-Cuaresma2003).Thefirstreferstotheroleofthecyclicalcomponent,thatis,theautomaticstabilizers.Thereis,nonetheless,asecondindirectchannelrelatedtopublicspendingitemsthatcontinuefixed,independentofthephaseofthebusinesscycleandbynotreactingtoitalsohaveastabilizingfunction.Thethird,istheuseofdiscretionaryfiscalpolicy(despitemostliteraturepointingtoapro-cyclicalbiasofthesepoliciesand,hence,adestabilizingeffect(vandenNoord2000).Changesinthestructuralbalanceneedpolicyactionsandtranslatediscretionaryfiscalpolicychanges.4

WhiletheGlobalFinancialCrisis(and,morerecently,thecoronavirusdisease[COVID-

4ToDosReisetal.(2007)itispreferabletorefertoautomaticstabilizersas“apassivepolicyresponsetothecycle.”

5

19]pandemic)stressedtherelevanceofdiscretionaryfiscalpolicy,theconsensusremainsthatautomaticstabilizershaveakeyroletoplayundermorenormal

circumstances(Blanchardetal.2010).5

On(ii),theissueisabouttheidentificationoftheeffectoffiscalimpulsesorshocksonagivenmacroeconomic(orother)outcome.Changesinstructuralbalancescanimplytheimpactontheeconomyofdiscretionaryactions(MullerandPrice1984).Theresearchonfiscalmultipliersisvoluminous(forinstance,Batinietal.2014discussthis).Avarietyofmethodscanbeusedtomeasurethe(“discretionary”)fiscalimpulsefrom“naturalexperiments”(Barro1981,RameyandZubairy2018),toforecasterrorsapproaches(AuerbachandGorodnichenko2013a,2013b;Abiadetal.2016;FurceriandLi2017)usedtoovercometheproblemof“fiscalforesight”(ForniandGambetti2010,BenZeevandPappa2015),tocyclicallyadjustedmethods(Adarovetal.forthcoming)especiallyinthecontextofstudieslookingatfiscalconsolidationsepisodes(GiavazziandPagano

1996,AfonsoandJalles2014,Clementsetal.2022).

On(iii),theconceptofCABisthemostimportanttofiscalsustainabilitydefinedastheleveltowhichthedebt–to-GDPratioconvergesinthelong-termgiventhepotentialoftheeconomy.6Fiscalsustainabilitycanbeevaluatedbasedondebtdynamicsresulting

fromthestructuralfiscalstance(Escolano2010).Inonecomparesthestructuralbalance

5Wheneconomicactivityslowsdown,revenuesarenegativelyaffected,andspendingmayincreaseautomatically—leadingtoariseinthefiscaldeficit.Empiricalstudiesacknowledgethedifficultiesincomeupwithreliableestimatesoffiscalstabilizers,buttheyalsorecognizethenecessitytohavesomeapproximations(Cotisetal.1998,AuerbachandFeenberg2000).Recentcontributionsoncomputingandemployingestimatesoffiscalstabilizersinclude:Furcerietal.(2020),FurceriandJalles(2019,2018),andJalles(2020,2018).

6Theconceptoffiscalsustainabilityrevolvesarounddeterminingthefutureprimarybudgetsurplusesnecessarytostabilizethedebt-to-GDPratio.ThisdebtratioisinfluencedbytherelativevaluesoftheimplicitnominalinterestrateandthenominalgrowthrateofGDP,ashighlightedinBlanchardetal.(1990).Whenconsideringthefinancialperspective,itmaybemoreappropriatetoshiftourattentiontowardsthegovernment'sborrowingrequirements,encompassingborrowingforfinancialtransactions,ratherthansolelyfocusingonthestructuralorunderlyingfiscalbalance.Insuchascenario,itbecomesvaluabletoconcentrateonthegovernment'sbalancesheetwhenevaluatingitsimplicationsforfiscalsustainability,assuggestedbyMoriyamaandMilesi-Ferretti(2004).

6

againstabenchmark(forinstance,thedebt-stabilizingbudgetbalance),canallowonetounderstandtowhatextentthecurrentfiscalpolicypathcanbesustained(Bornhorstetal.2011).Thisalsotranslatedaproxyofthefiscaleffortneededtocorrectanyfiscalimbalances.Thestructuralbalance,bycorrectingforshort-termcyclicalfactorsandone-

offs,issuitableforthispurpose.

Adjustmentsbeyondthebusinesscyclerequiresomeadditionaljudgement,suchthattheuseofthestandardfilteringtechniquesshouldbesoundlymotivated.Thedifficultyoriginatesfromthedeterminationofthe“normal”stateofeconomicvariablesotherthanoutput.Whenlookingatissuessuchasassetorcommodityprices,thesourcesofeconomicfluctuationsarerelevant.Ifshockscomefromthedemandsideoftheeconomy,thenthefilteringtechniqueswillpinpointboththecyclicalandtrendcomponents.However,ifshocksaresupply-driven,theireffectisexpectedtobe

permanent,makinganytrend-cyclefilteringapproachdeceptive.

3.MethodologiestoObtainCyclicallyAdjustedBalance

3.1Aggregatedvs.DisaggregatedApproach

TherangeofmethodologiesforobtainingtheCABorSBcanberesumedtoessentiallythreepossibilities.Thefirst,wasdevelopedbyBlanchard(1990)anditinvolvesestimatingcyclicallyadjustedmeasuresofrevenuesandexpendituresdirectlyfromregressions.LaterapplicationsofthisfirstapproachrelyonstructuralVectorAutoRegressions(VARs)(DalsgaardanddeSerres1999)andunobservedcomponentmodels(Camba-Mendez

andLamo2002).

7

Fromnow,wewillapplyBlanchard’sapproach.Wecannormallygroupthedifferentmethodologiesintoeithertheaggregatedorthedisaggregatedapproach.TheEuropeanCommission(EC)andtheOrganisationforEconomicCo-OperationandDevelopment(OECD)respectivelyapplythesetwoapproachesforthecyclical

adjustmentofgovernmentbudgetbalances.

TheEC’saggregateapproachisbasedontheresponseofgovernmentexpenditureandrevenuetotheoutputgap.Thecyclicalcomponentofthebudgetbalanceisthenobtainedastheproductoftheoutputgapandaparameterreflectingtheautomaticreactionofthegovernmentbalancetoitssize.Atsomemomentintime,theIMFalsoappliedthisaggregatemethod(Fedelinoetal.2009).Thebigadvantageofthisaggregatedapproachisthatitisarathersimpleexercisewithminimaldatarequirementsthatprovidesagoodbasisforcross-economycomparisons.Thedisadvantageisthatitcanproduceaccurateresultsonlyifthemajorfiscalaggregatesbehavebroadlysimilarly

withrespecttotheoutputgapandrevenues’compositionhardlychange.

TheOECDapplieswhatisknownasthedisaggregatedapproachwhichconsistsinobtainingestimatesoftheelasticitiesofthemaincomponentsofthebudgetwithrespecttothecycleintheirrelevanttaxbases(Bouthevillainetal.2001).TheOECD’sapproachmainadvantageisthatitexplicitlyallowstheidentificationofsuchcompositioneffects,anditenablesamoreaccurateestimateoftheunderlyingfiscalposition.Hence,thisapproachoffersmorestabilityandbetterinsightsintothecyclicalresponseofvariousbudgetaryitems,inotherwords,insightsintothecompositionofautomaticstabilizers.Understandingofthedifferenttaxes’cyclicalsensitivitiescanalsohelpinevaluatingthe

impactofaneconomicdecelerationonsub-nationalpublicfinancesiftaxesaresubject

8

torevenuesharing(Bornhorstetal.2011).Themaindisadvantageofthisdisaggregatedapproachisthatitismoredata-intensivewhichcanposeaproblemforlargercross-

sectionalsamples.

WhichApproachtoFollow?

Cyclicallyadjustedfiscalvariablescomputedusingtheaggregatedapproachwillbesimilartothoseobtainedbyweighted-averagingdisaggregatedadjustmentsofrevenue

andexpenditureitems,ifatleasttwoconditionsaremet:

.Thecompositionofexpendituresandrevenuesareakeptroughlyunchanged.Theaggregatemethodismosteffectivewhentherearenosignificantvariationsinthe

cyclicalpatternsofmajortaxorspendingcategories.

.Elasticitiesforindividualbudgetaryitemsareakeptroughlyunchanged.However,alterationsintaxpoliciesoradjustmentstothesocialbenefitsystemcanimpactelasticities,subsequentlyinfluencingthesensitivityoffiscalvariablestoeconomic

cycles(Bornhorstetal.2011).

Finalresultsfrombothapproachescandiffer,however,evenwhentheabove-mentioned

conditionsareverified.

Mutualtoeitherapproachisthemathematicalstepwisesequencing.Acyclicalcomponentofthebudgetbalance,“CC”,isfirstestimatedandsubsequentlysubtracted

fromthenominalbudgetbalance(BB)togettheCAB,sothat:

cABi=BBi−cci(1)

whereallvariablesareexpressedinpercentofGDP(Bornhorstetal.2011).7

7Intheory,itisconceptuallymoreaccuratetousepotentialGDPinsteadofnominalGDP.Forinstance,changesintheexpenditureratiomayoccursimplyduetofluctuationsinnominalGDP,eveniftheactualspendinglevelsremain

9

TheestimationofthecyclicalcomponentCCrequirestwoinputs:

(i)ameasureofthecyclicalpositionoftheeconomy,whichisgenerallymeasuredbytheoutputgap,measureofaneconomy’scyclicalpositiondefinedasthe

distancebetweenactualandpotentialoutput(Section3.1);and

(ii)ameasureofthelinkbetweenthecycleandthecomponentsofthebudget,summarizedbyelasticityparametersrepresentingthepercentagechangeinbudgetaryitemsassociatedwithpercentagechangesinthelevelofeconomicactivity.8Onthisaspectofelasticities,someresearchersusethoseprovided

byothers(e.g.,GirouardandAndré2005)orestimatetheirown(Section3.2).

Thecyclicallyadjustedbudgetbalance(CAB)isderivedas:

CABi=BBi−ε.OGi(

2)

whereεtheoverallbudgetarysensitivityparameterandOGiistheoutputgap.

Inpracticeandmathematicallyequivalent,onewaytoobtainameasureofthe

CABistocomputeitasafunctionofcyclicallyadjustedrevenue(R)andcyclically

adjustedexpenditures(G):

CABi=R−G(3)

constant,whichwouldn'tbethecasewhenratiosarecalculatedinrelationtopotentialGDP.AlthoughvariousmethodsexistforcalculatingpotentialGDPandoutputgaps,theycomewithseveralchallenges,asdiscussedinSection3.1.Generally,potentialGDPisalessreadilyunderstoodconceptcomparedtonominalGDPandisseldomutilizedbypolicymakersandthegeneralpublic.ThisisevidentinhowfiscalanalysistypicallyreliesonratiosinvolvingnominalGDP.Consequently,expressingdeviationsofheadlinedeficits(andfiscalvariables)asapercentageofpotentialGDPmaynotresonatewellwithgovernmentauthoritiesandthepublic.Therefore,thereisatrade-offbetweenanalyticalprecision(whenusingpotentialGDP)andtheconvenienceofcommonlyusedindicators(whenusingnominalGDP)(Fedelinoetal.2009).

8DiscussionsabouttheestimationoftaxelasticitiescanbefoundinBouthevillainetal.(2001),vandenNoord(2002),GirouardandAndré(2005),andWolswijk(2007).

10

Cyclicallyadjustedrevenuecanbecalculatedbymodifyingactualrevenuefigurestoaccountfortheimpactofthegapbetweenpotentialandactualoutput,wherethe

revenueelasticitydeterminesthemagnitudeofthecyclicalimpact:

R=Tఘೃ,ೊ=r(OG−1)ି(ఘೃ,ೊ)(4)

whereTdenotestheshareofrevenuesinGDP,denotestheoutputgapdefinedastheratioofpotential(Y*)toactualGDP(Y).Thiscanrelatedirectlytothemorecommonlyusedexpressionfortheoutputgap,thepercentagedeviationofactualfrompotentialGDP(0G=)asfollows:=.Economically,withahigherthanonerevenueelasticity(pோ,>1),eachpercentageincreaseintheoutputgapleadstoalargerthanone

percentagechangeinrevenues(Bornhorstetal.2011).

Analogously,cyclicallyadjustedexpendituresarecomputedas:

G=gఘಸ,ೊ=g(OG−1)ି(ఘಸ,ೊ)(5)

wheregdenotestheshareofexpendituresinGDP.

So,ineffect,equation(3)canberewrittenas

CAB=r(OG−1)ି(ఘೃ,ೊ)−g(OG−1)ି(ఘಸ,ೊ)(6)

AsbudgetaryvariablesaretypicallyexpressedinpercentofGDP,theelasticities

ofrevenueandexpenditureitemspோ,andpீ,respectively,aretranslatedintosensitivity

parametersinthefollowingway:

(7)

εோ=pோ,.;εீ=pீ,.

suchthatthedifferenceεோ−εீyieldstheoverallbudgetarysensitivityparameterεused

intheequation(2).

11

Table1showsasampleofOECDeconomies’aggregatebudgetaryelasticities

parametersretrievedfromLarchandTurrini(2009).

Table1:BudgetarySensitivityParameters

Economy

Revenue

Expenditure

BudgetBalance

Economy

Revenue

Expenditure

BudgetBalance

Belgium

0.47

-0.07

0.54

Hungary

0.45

-0.01

0.46

Bulgaria

0.35

-0.01

0.36

Malta

0.35

-0.01

0.36

CzechRepublic

0.36

-0.01

0.37

TheNetherlands

0.39

-0.17

0.55

Denmark

0.50

-0.15

0.65

Austria

0.43

-0.04

0.47

Germany

0.40

-0.11

0.51

Poland

0.33

-0.06

0.40

Estonia

0.29

-0.01

0.30

Portugal

0.41

-0.04

0.45

Greece

0.42

-0.01

0.43

Romania

0.28

-0.02

0.30

Spain

0.38

-0.05

0.43

Slovenia

0.42

-0.05

0.47

France

0.44

-0.06

0.49

SlovakRepublic

0.27

-0.02

0.29

Ireland

0.36

-0.05

0.40

Finland

0.41

-0.09

0.50

Italy

0.49

-0.02

0.50

Sweden

0.48

-0.10

0.58

Cyprus

0.39

-0.01

0.39

UnitedKingdom

0.40

-0.02

0.42

Latvia

0.26

-0.02

0.28

Lithuania

0.26

-0.01

0.27

Euroarea

0.42

-0.06

0.48

Luxembourg

0.48

-0.01

0.49

EU27

0.39

-0.04

0.43

Source:LarchandTurrini(2009).

Thedisaggregatedapproachfinetunestheoverallprevioussequenceofstepsbyfurtherdecomposingthetwomainbudgetaryitemsofrevenuesandexpendituresandestimatingindividualrevenueelasticities.Whendoingso,oneneedstotakeastanceonrevenueorexpenditureitemsthatmaynotrequirecyclicaladjustment.Thismeansthatonlyasubsetofrevenuecomponentsisadjusted,thosetypicallybeingpersonalincometaxes,corporateincometaxes,indirecttaxesorvalue-addedtaxesandsocialsecuritycontributions.Forexpenditure,somerelyoncyclicaladjustmentofonlycurrentprimaryexpenditures,therefore,excludinginterestpaymentsandcapitalexpenditure).9Others

simplyfocusononeitemofcurrentprimaryexpenditures,theunemploymentbenefits.

9Interestexpensesmaydisplaycyclicalityintandemwithfiscaldeficits,resultinginincreased(decreased)borrowingneedswhenthereisapositive(negative)outputgap.This,inturn,canleadtofluctuationsintheinterestcostsincurred.Countercyclicalshiftsininterestrateshavethepotentialtooffsetthecyclicalnatureofborrowingrequirements,potentiallyresultinginaminimalnetimpact,ifany,assuggestedbyFarringtonetal.(2008).

12

However,theynormallyaccountforasmallproportionoftotalorprimaryspendinginmost

economies(ifatall).

Mathematically,thisversionoftheCABcanbeexpressedas:

CAB=ൣ൫∑R൯−G+Rே−Gே൧

(8)

whereRisthecyclicallyadjustedcomponentiofrevenues,Gisthecyclically

adjustedunemployment-relatedexpenditures,RேandGேdenotethenon-cyclically

adjustedrevenueandexpenditurecomponentsrespectively.

Forcyclicallyadjustedrevenues,thenewpோ,canbeobtainedas:

(9)

pோ,=∑pோ,

wherepோ,istheelasticityofeachrevenuecomponentwithrespecttotheoutputgap

andistheshareofeachrevenuecomponentiintotal

Forcyclicallyadjustedexpenditures,thenewpீ,

pீ,=pீ,

ீೆ

ீ

revenues.

canbeobtainedas:

(10)

wherepீ,istheelasticityofunemploymentbenefitswithrespecttotheoutputgapand

istheshareofunemploymentbenefitsincurrentprimaryexpenditure