The Relation Between The Cyclically Adjusted Budget Balance And The Growth Accounting Method Of Deriving Net Fiscal Effort

This paper deals with the growth accounting method used to derive "Net fiscal effort." Net fiscal effort can then provide a clue about whether fiscal policy is expansionary or not, and, together with data on economic performance, can answer the question of the pro- or anti-cyclicality of the fiscal stance. Traditionally, the answer to such questions has been provided via the cyclically adjusted budget balance. The author argues that the relatively computationally intensive and data demanding process of estimation of the cyclically adjusted budget balance can be replaced by the simple growth accounting method without significant loss of information.