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The new ESCB methodology for the calculation of cyclically adjusted budget balances: an application to the Portuguese case

Publication Year 
JEL Code 
E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation
H20 - General
H60 - General
The analysis of public finance developments relies, amongst other indicators, on estimates of cyclically adjusted budget balances (CABs), which correct headline government balances for business cycle fluctuations. The European System of Central Banks (ESCB) endorsed in late 2018 a new aggregate methodology for the calculation of CABs, developed by Bouabdallah et al., 2019. This paper presents the application of this new cyclical adjustment methodology to the Portuguese case, providing details on the calculation of the underlying fiscal-to-base and base-to-output elasticities. Additionally, it describes the output gap estimations used to assess the cyclical position of the economy. The paper also presents the analytical tool developed by Bouabdallah et al., 2019 to disentangle the drivers of structural fiscal developments, providing details on its application to Portugal.
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