Skip to main content
SpringerLink
Log in

The structural budget deficit as an instrument of fiscal policy

  • Published:
De Economist Aims and scope Submit manuscript

Summary

The article describes how the structural budget deficit is or has been applied as an instrument of fiscal policy in the United States (the Full or High Employment Budget), the Netherlands (the Structural Budget Norm) and West Germany (the Cyclically Corrected Budget). The structural budget deficit is used as a guideline for fiscal policy (normative) and/or as an index in formulating a summary number to measure the cyclical influence of the budget (analytical). In the article only the first use is supported. Furthermore, it is shown that the structural deficit in the Netherlands is not only the highest one, but also shows the biggest departure from its normative value.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  1. This terminology has been popular since the end of the 1970's. Earlier this norm was called the Full Employment Budget Surplus (FES).

  2. The actual size of the structural deficit is the actual deficit corrected for cyclical elements.

  3. For capital expenditures borrowing must take place because otherwise the soveriegnty of individual economic subjescts with respect to their consumption/saving decisions is violated.

  4. In the case of a progressive tax system and expenditures which grow at most proportionately with the trend growth of the national income, the budget deficit (surphus), as the result of the trend growth in income, will be getting smaller (larger). Thus the budget exerts a restrictive influence on the economic activity.

  5. See, for example, E. Gramlich, ‘Measures of the Aggregate Demand Impact of the Federal Budget,’ in: Wilfred Lewis, Jr. (ed.),Budget Concepts for Economic Analysis, 2nd edition, Washington, D.C., 1972, p. 121.

  6. See: Committee for Economic development,Taxes and the Budget: A Program for Prosperity in a Free Economy, 1947.

  7. E. Cary Brown, ‘Fiscal Policy in the Thirties: A Reappraisal,’American Economic Review, XL VI (1956), pp. 857–879.

    Google Scholar 

  8. The exceptions are the Annual Reports of 1963, 1966, 1967, 1972 and 1978 (in this one the HEB is used as a guide), and 1982 (which is entierly in the shadow of supply-side economics).

  9. Neutral with respect to the cycle means that the cyclical influence is zero.

  10. Since the foreign sector plays a rather insignificant role for the United States, the net savings in the government sector equal, roughly, the net savings of the other domestic sectors of the economy (with a different sign).

  11. See:Annual Report 1978, pp. 88–91.

  12. De overheidsfinanciën in de volkshuishouding, Leiden, 1950.

  13. At the same time, it is some what understandable when one considers that the structural size of net savings in the private sector-which, as will appear below, play such an important role in the SBN-was ignored in the United States at that time.

  14. See the Fourth Report by the Studiegroep Begrotingsruimte of July 13, 1979, in:Begrotingsruimte en begrotingstekort, Assen, 1974, pp. 73 and following.

  15. The trend value of this elasticity for the Netherlands is (1.16).

  16. For further details, the reader is referred to H. Burger, ‘Structural Budget Policy in the Netherlands,’De Economist, CXXIII (1975), pp. 329–351, in particular pp. 334–340. Another early article on the SBN is ‘De Zajlstra-norm in theorie en praktijk,’ by C.J. Oort and G. de Man, in:AMRO Kwartaaloverzicht, No. 13 (March) and 14 (June), 1968. This article treats, among other things, the complications which inflation introduces for the application of the SBN.

    Google Scholar 

  17. See, for example: ‘Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung,’Investieren für mehr Beschäftigung-Jahresgutachten 1981/82, Stuttgart und Mainz, 1981.

  18. By ‘actual budget balance analysis’ is meant the judging of the cyclical influence of the budget by using the actual size of the deficit or changes therein.

  19. The actual size of the structural budget balance is found by removing cyclically determined elements from the actual budget balance.

  20. See for example: OECD, ‘The Measurement of Domestic Cyclical Fluctuations,’OECD Economic Outlook, Occasional Studies, Paris, July 1973, and: L.J. Christiano, ‘A Survey of Measures of Capacity Utilization,’IMF Staff Papers, XXVIII (1981), pp. 144–198. Also illustrative in this sense are theAnnual Report 1979 (p. 175) by the Council of Economic Advisors, and the Jahresgutachten 1979–80 (p. 214) by the Sachverständigenrat (Stuttgart and Mainz, 1979).

  21. This is the elasticity of the tax receipts with respect to the size of the national income.

  22. See Leeuw, F. de, Th.M. Holloway, D.G. Johnson, D.S. McClain, and Ch.A. Waite, ‘The High-Employment Budget: New Estimates, 1955–80,’Survey of Current Business, LX (1980), pp. 13–43.

    Google Scholar 

  23. This analysis is based on: W.H. Oakland, ‘Budgetary Measures of Fiscal Performance,’Southern Economic Journal, XXXV (1969), pp. 347–358.

    Google Scholar 

  24. This does not mean that this is the best simple indicator. A better one, for example, is that of R. Lenk, in:Zur Schätzung und Beurteilung konjuktureller Wirkungen öffentlicher Haushalte, Berlin-Munich, 1979, pp. 215–227. This indicator takes the trend growth of income into account, and measures the automatic influence of the budget in addition to the autonomous influence. See also: C.G.M. Sterks,Begrotingsnormen, Dissertation, Groningen, 1982, pp. 321–327.

  25. The figure for the Netherlands is based on theSixth Report of the Studiegroep Begrotingsruimte, Tweede Kamer, sessions 1977–78, 15081, Nos. 1–2. The Netherlands Bank, in itsJaarverslag 1981 implicitly uses the same figures.

  26. See F. de Leeuw and Th. M. Holloway, ‘The High Employment Budget: Revised Estimates and Automatic Inflation Effects,’Survey of Current Business, LXII (1982), p. 27. The number in parentheses refers to the 1983 budget year. Its calculation is based on theEconomic Report of the President, Washington, Feburuary 1983. p. 26.

    Google Scholar 

  27. The calculation is based onSondergutachten, IV (1981), Sachverständigenrat, supplement IV toJahresgutachten 1981/82, Stuttgart and Mainz, 1981, pp. 206–219, in particular p. 210, figure 1.

  28. Own calculation. For the method, the reader is referred to C.G.M. Sterks,Begrotingsnormen, Dissertation, Groningen, 1982, section, 6.7, pp. 329–338.

Download references

Author information

Authors and Affiliations

  1. University of Groningen, The Netherlands

    C. G. M. Sterks

Authors
  1. C. G. M. Sterks
    View author publications

    You can also search for this author in PubMed Google Scholar

Additional information

I am indebted to J. Pen and J. Zijlstra for helpful comments and to R. Gigengack for the translation. All remaining errors are mine.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Sterks, C.G.M. The structural budget deficit as an instrument of fiscal policy. De Economist 132, 183–203 (1984). https://doi.org/10.1007/BF02380298

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1007/BF02380298

Keywords

Search

Navigation