Scandinavian Working Papers in Economics

Working Papers,
National Institute of Economic Research

No 90: A New Method for Constructing a Cyclically Adjusted Budget Balance: the Case of Sweden

Henrik Braconier and Tomas Forsfält ()
Additional contact information
Henrik Braconier: National Institute of Economic Research, Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden
Tomas Forsfält: National Institute of Economic Research, Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden

Abstract: In this paper, we discuss a new method for constructing a cyclically adjusted budget balance. We use the method to evaluate the budget balance for Sweden during the period 1991–2005. Traditionally, methods for cyclical adjustment have focused on the output gap. In this paper we also adjust for deviations of tax bases from their trend levels. Furthermore, we adjust for effects of the unemployment gap on government spending. For Sweden, we find that these additional adjustments have a significant impact on the cyclically adjusted budget balance, especially for the periods 1992–1995 and 2000–2001.

Keywords: Fiscal Policy; Cyclically Adjusted Budget Balance

JEL-codes: H30; H61

19 pages, April 15, 2004

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