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The new ESCB methodology for the calculation of cyclically adjusted budget balances: an application to the Portuguese case
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 article presents the application of this new methodology to the Portuguese case, providing details on the calculation of the underlying fiscal-tobase and base-to-output elasticities. Additionally, it describes the output gap estimations used to assess the cyclical position of the economy. The article 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.