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Challenges in measuring fiscal effects
2021
Authors
Publication Year
2021
Abstract
The channels through which governments affect the economy are manifold. In this article the focus is exclusively on direct fiscal effects stemming from the budget balance. The article presents and assesses the most frequently used methodologies for computing automatic stabilisers, the fiscal stance and the fiscal impulse. Alternative simpler approaches for the determination of the stance and the impulse are also proposed. This clear-cut conceptual framework is applied to Portuguese public finances in the last two decades, with a particular focus in 2020. The contribution of the fiscal stance to fiscal developments is only slightly higher than that of the automatic stabilisers in the 2000-20 period and there is no clear pattern between the two indicators. In 2020, both indicators have played a major role in explaining the deterioration in the budget balance. Moreover, calculations for the fiscal impulse show that, in their absence, GDP could have dropped by 11 per cent in 2020, instead of the observed 7.6 per cent decline.
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