A bottom-up approach to assess the budgetary impact of discretionary fiscal policies
This paper develops a simple bottom-up approach to measure the direct budgetary impacts (DBI) of fiscal policy. The method complements the standard top-down approach, where changes in the primary structural budget balance are seen as a measure of the fiscal stance. The bottom-up approach can to a large extent be seen as a balance sheet method with no need to apply sophisticated economic analysis, econometric models or judgement. Besides measuring the fiscal stance, the bottom-up approach can form part of an overall assessment of what has been driving year-to-year changes in the cyclically adjusted balance (CAB). A detailed and a simple version of the method are applied to the case of Denmark, whereas the simple method is applied to 12 European countries, Japan and the US.
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