Calculating the Structural Fiscal Balance

The WSJ reports on moves to reform the EU’s method for calculating the output gap and the structural fiscal balance  – here.

12 replies on “Calculating the Structural Fiscal Balance”

off topic

The Reality of present day Egypt:

Egypt’s Cunning General: How the Military Plans to Keep Power
By Raniah Salloum

Egyptian President Morsi has been toppled, and a judge will be the country’s new interim leader. But in reality, he’s just a puppet. Behind the scenes, General Abdel-Fattah el-Sissi and his military apparatus will continue to call the shots.


The European Commission has established the Output Gap Working Group, OGWoG. The output gap will be whatever OGWoG says it is, having agreed (common?) levels of the (50?) exogenous and unpredictable variables which determine potential output. Structural deficits can then be computed for each Eurozone member to two decimal places.

Member states with high debts and actual deficits but low structural deficits will then be free to borrow in markets which are closed to them. This is simple and straightforward. Doubters are being obtuse.

If nominated, would you serve as the Irish rapporteur on the Group de Travail de l’ecart de production. There should be a good decade of stimulating and well paid employment here before it comes up with a commonly agreed methodology for calculating output gaps. In the best traditions of the EU there would of course never be an output gap as that would imply a problem demanding a solution.

The output gap depends crucially on the ‘natural’ rate of unemployment, aka the Non-accelerating Inflation Rate of Unemployment (NAIRU).
In 1991 Layard, Nickell and Jackman published a 600-page tome on Unemployment. This excellent compendium of the economic theory and econometrics of unemployment provided estimates of ‘natural’ or ‘equilibrium’ unemployment rates for the OECD countries. The estimates for Ireland were 6.08% in the 1960s and 13.09% in the 1980s. (Note the precision!)
However, readers will recall that during the early years of this century our unemployment rate fell below 5% and inflation remained low.
As Robert Solow noted ages ago, a rate that hops around from one decade to another is not ‘natural’ at all.

Has the website locked today?

On the homepage for I can see Kevin O’Rourke’s recent post, ‘Why Economics needs Economic History’, but only that, there are no other options, neither to comment on it or anything else. i only got to here by clicking on his name, and then going to his next most recent article, and then clicking forward through the article-titles just below the banner. There must be a bug in the system somewhere?…

The WSJ article is of great interest because it succeeds in locating a a technocratic topic in its proper political context.

Derek Scally also succeeds in doing so in this coverage of the recent summit on youth unemployment in Berlin (designed to boost Merkel’s re-election chances).

The narrative on the euro crisis is skewed in all countries with Germany being no exception, as he points out in another article.

On the issue of employment, however, the Germans happen to be right. The failures lie in mistaken policies at a national not EU level. There has been no such failure in Germany. There it is not a question of “creating jobs” but of finding sectors of economic activity which are successful in a competitive world and which, in turn, generate employment. This is coupled with intelligent apprenticeship arrangements that ensure that youth are not left behind.

@ Flj

The OECD is an admirable organisation but it does not provide a forum for real negotiation. The EU, on the other hand, does. (The US seems very aware of this as it devotes a good deal of effort to eavesdropping on what the Europeans might be up to). The trade negotiations now beginning are the real test IMHO.


“Democrats now like trade more because they control the commanding heights of the information economy – America’s globalised high-technology companies”.

Keeping control of the “commanding heights” requires the maintenance of large cash war chests by the companies in question. That they – or rather the forces that control them – might agree to pay tax instead to assorted claimants seems to me unlikely.


the OECD is an organisation of unelected bean counters with about 2000 employees, without any rights to determine anything, and no budget worth to mention beyond paying their employees.

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