Document de Travail de la DG Trésor n° 2009/13 - Structural balance and "structural effort": towards a breakdown by general government sub-sector

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The evolution of the public budget balance is strongly influenced by short-term economic developments. Consequently, the “structural” budget balance, i.e. the balance adjusted for the impact of the business cycle, is traditionally used to assess the stance of the fiscal policy. This paper clarifies the definition and calculation of this balance and enriches the analysis by presenting two additional tools. Firstly, it recalls in a detailed manner the definition of the “structural effort”, a concept first introduced by Duchêne & Lévy (2003), which aims at isolating the discretionary part of the change in the structural balance, on which policy decisions may have an influence, from its non-discretionary part, which includes the impact of changes in the elasticity of tax revenues. Secondly, it presents a breakdown of this decomposition between the various sub-sectors of general government, thus improving the understanding of the evolution of public finances at a more detailed level.