- Volker Treichel, and Ahsan Mansur
- Published Date:
- November 1999
Fiscal impulse analysis is a tool used to identify expansionary and contractionary periods of fiscal policy by comparing the actual deficit with a hypothetical deficit that would have materialized if fiscal policy had been neutral.1 The hypothetical deficit is calculated based on the assumption that expenditure is unit-elastic with respect to the potential growth rate of nominal GDP, whereas revenue is unit-elastic with respect to the actual growth rate of nominal GDP.
To calculate the stance of fiscal policy in a given year, the cyclically neutral deficit (Bn) is calculated by subtracting, from the base-year ratio of revenue to GDP multiplied by actual nominal GDP in the current year, the base-year ratio of expenditure to GDP multiplied by potential GDP in the current year:
T = government revenue,
G = government expenditure,
to = To/Yo the revenue ratio in the base year,
go = Go/Yo a base-year expenditure ratio,
Y= actual output in nominal prices,
Yp = potential output in nominal prices.
The actual deficit in a given year can be described as either expansionary or contractionary, depending on whether it exceeds or falls short of, respectively, the cyclically neutral budget B. The fiscal stance is defined as the difference between the cyclically neutral budget deficit B” and the actual deficit B:
where fis is the fiscal stance. The first difference of fis then describes the nature of the fiscal impulse.
Another useful tool for analyzing the fiscal stance is the structural budget deficit. Conceptually, the structural deficit is the deficit that would have materialized if the economy were moving along its normal trend, that is, in neither a recession nor a boom. An appropriate choice of the base year is critically important for measuring the structural balance correctly. The structural deficit (Bs) is calculated by subtracting the fiscal stance (fis) from the base-year deficit:
If the stance of fiscal policy is expansionary (fis < 0), and the budget was in deficit in the base year (Bo < 0), the structural balance will be higher than the base-year balance.
The calculation of Bn requires the calculation of the growth rate of potential output and the selection of a base year. There are different methods for calculating the growth rate of potential output.2 In this paper the potential output growth rate for Oman has been defined as the average growth rate over the period 1981–97. The basic criterion for choosing a base year is that potential and actual output should not have diverged substantially in that year. Moreover, given the importance of the oil price for Oman’s economy, the base year should not be one in which oil prices were extremely high or low.
Based on these two criteria, over the period 1981–97 two base years have been identified: 1983 and 1991. The year 1983 is the benchmark for assessing fiscal performance during 1981–86, prior to the collapse of the oil price, and 1991 is the base year for the subsequent period 1987–97. In those two years potential output exhibited a relatively small deviation from actual output. Also, in those years the oil price was close to the average over the period in question.3 In calculating the structural deficit, the same two base years (1983 and 1991) were assumed as in the calculation of the cyclically neutral budget.
HellerP. RichardHaas and AhsanMansur1986A Review of the Fiscal Impulse Measure,IMF Occasional Paper 44(Washington:International Monetary Fund).
Recent Occasional Papers of the International Monetary Fund
185. Oman Beyond the Oil Horizon: Policies Toward Sustainable Growth, edited by Ahsan Mansur and Volker Tretchel. 1999.
184. Growth Experience in Transition Countries, 1990–98, by Oleh Havrylyshyn, Thomas Wolf, Julian Beren-gaut, Marta Castello-Braneo. Ron van Rooden, and Valerie Mercer-Blackman, 1999.
183. Economic Reforms in Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan, by Emine Gurgen, Harry Snoek, Jon Craig, Jimmy MeHugh, Ivailo Izvorski, and Ron van Rooden. 1999.
182. Tax Reform in the Baltics, Russia, and Other Countries of the Former Soviet Union, by a Staff Team Led by Liam Ebrill and Oleh Havrylyshyn. 1999.
181. The Netherlands: Transforming a Market Economy, by C. Maxwell Watson, Bas B. Bakker, Jan Kees Martijn, and loannis Halikias. 1999.
180. Revenue Implications of Trade Liberalization, by Liam Ebrill, Janet Stotsky, and Reint Gropp, 1999.
179. Dinsinflation in Transition: 1993–97, by Carlo Cottarelli and Peter Doyle. 1999.
178. IMF-Supported Programs in Indonesia, Korea, and Thailand: A Preliminary Assessment, by Timothy Lane, Atish Ghosh, Javier Hamann, Steven Phillips, Marianne Schulze-Ghattas, and Tsidi Tsikata. 1999.
177. Perspectives on Regional Unemployment in Europe, by Paolo Mauro, Esawar Prasad, and Antonio Spilimbergo. 1999.
176. Back to the Future: Postwar Reconstruction and Stabilization in Lebanon, edited by Sena Eken and Thomas Helbling. 1999.
175. Macroeconomic Developments in the Baltics, Russia, and Other Countries of the Former Soviet Union, 1992–97, by Luis M. Valdivieso. 1998.
174. Impact of EMU on Selected Non-European Union Countries, by R. Feldman. K. Nashashibi, R. Nord. P. Allum, D. Desruelle, K. Enders, R. Kahn. and H. Temprano-Arroyo. 1998.
173. The Baltic Countries: From Economic Stabilization to EU Accession, by Julian Berengaut, Augusto Lopez-Claros, Francoise Le Gall, Dennis Jones, Richard Stern, Ann-Margret Westin, Effie Psalida, Pietro Garibaldi. 1998.
172. Capital Account Liberalization: Theoretical and Practical Aspects, by a staff’team led by Barry Eichen-green and Michael Mussa, with Giovanni Dell’Ariccia, Enrica Detragiache, Gian Maria Milesi-Ferretti, and Andrew Tweedie. 1998.
171. Monetary Policy in Dollarized Economies, by Tomas Balifio, Adam Bennett, and Eduardo Borensztein. 1998.
170. The West African Economic and Monetary Union: Recent Developments and Policy Issues, by a staff team led by Ernesto Hernandez-Cata and comprising Christian A. Francois, Paul Masson, Pascal Bou-vier, Patrick Peroz, Dominique Desruelle, and Athanasios Vamvakidis. 1998.
169. Financial Sector Development in Sub-Saharan African Countries, by Hassanali Mehran, Piero Ugolini, Jean Phillipe Briffaux. George Iden, Tonny Lybek, Stephen Swaray, and Peter Hayward. 1998.
168. Exit Strategies; Policy Options for Countries Seeking Greater Exchange Rate Flexibility, by a staff team led by Barry Eichengreen and Paul Masson with Hugh Bredenkamp, Barry Johnston, Javier Hamann, Esteban Jadresic, and Inci Otker. 1998,
167. Exchange Rate Assessment: Extensions of the Macroeconomic Balance Approach, edited by Peter Isard and Hamid Faruqee. 1998
166. Hedge Funds and Financial Market Dynamics, by a staff team led by Barry Eichengreen and Donald Mathieson with Bankim Chadha, Anne Jansen, Laura Kodres, and Sunil Sharma. 1998.
165. Algeria: Stabilization and Transition to the Market, by Karim Nashashibi, Patricia Alonso-Gamo, Stefania Bazzoni, Alain Feler, Nicole Laframboise, and Sebastian Paris Horvitz. 1998.
164. MULTIMOD Mark III: The Core Dynamic and Steady-State Model, by Douglas Laxton, Peter Isard, Hamid Faruqee, Eswar Prasad, and Bart Turtelboom. 1998.
163. Egypt: Beyond Stabilization, Toward a Dynamic Market Economy, by a staff team led by Howard Handy. 1998.
162. Fiscal Policy Rules, by George Kopits and Steven Symansky. 1998.
161. The Nordic Banking Crises: Pitfalls in Financial Liberalization? by Burkhard Dress and Ceyla Pazarbaşioğlu. 1998,
160. Fiscal Reform in Low-Income Countries: Experience Under IMF-Supported Programs, by a staff team led by George T. Abed and comprising Liam Ebrill, Sanjeev Gupta, Benedict Clements, Ronald Mc-Morran, Anthony Pellechio, Jerald Schiff, and Marijn Verhoeven. 1998.
159. Hungary: Economic Policies for Sustainable Growth, Carlo Cottarelli, Thomas Krueger, Reza Moghadam, Perry Perone, Edgardo Ruggiero, and Rachel van Elkan. 1998.
158. Transparency in Government Operations, by George Kopits and Jon Craig. 1998.
157. Central Bank Reforms in the Baltics, Russia, and the Other Countries of the Former Soviet Union, by a staff team led by Malcolm Knight and comprising Susana Almuina, John Dalton, Inci Otker, Ceyla Pazarbaşioğlu, Amu 15 Pcicrsen. Peter Quirk, Nicholas M, Roberts, Gabriel Sensenbrenner, and Jan Willem van der Vossen. 1997,
156. The ESAF at Ten Years: Economic Adjustment and Reform in Low-Income Countries, by the staff of the International Monetary Fund. 1997,
155. Fiscal Policy Issues During the Transition in Russia, by Augusto Lopez-Claros and Sergei V. Alexas-henko. 1998.
154. Credibility Without Rules? Monetary Frameworks in the Post-Bretton Woods Era, by Carlo Cottarelli and Curzio Giannini. 1997.
153. Pension Regimes and Saving, by G.A. Mackenzie, Philip Gerson, and Alfredo Cuevas. 1997.
152. Hong Kong, China: Growth, Structural Change, and Economic Stability During the Transition, by John Dodsworth and Dubravko Mihaljek. 1997.
151. Currency Board Arrangements: Issues and Experiences, by a staff team led by Tomás J.T. Bahfio and Charles Enoch. 1997.
150. Kuwait: From Reconstruction to Accumulation for Future Generations, by Nigel Andrew Chalk, Mo-hamed A. El-Erian, Susan J. Fennell, Alexei P. Kireyev, and John F. Wilson. 1997.
149. The Composition of Fiscal Adjustment and Growth: Lessons from Fiscal Reforms in Eight Economies, by G.A. Mackenzie, David W.H. Orsmond, and Philip R. Gerson. 1997.
148. Nigeria: Experience with Structural Adjustment, by Gary Moser. Scott Rogers, and Reinold van Til, with Robin Kibuka and Inutu Lukonga. 1997.
147. Aging Populations and Public Pension Schemes, by Sheetal K. Chand and Albert Jaeger. 1996.
146. Thailand: The Road to Sustained Growth, by Kalpana Kochhar, Louis Dicks-Mireaux, Balazs Horvath, Mauro Mecagni, Erik Offerdal, and Jianping Zhou. 1996.
145. Exchange Rate Movements and Their Impact on Trade and Investment in the APEC Region, by Takatoshi Ito, Peter Isard, Steven Symansky, and Tamim Bayoumi. 1996,
144. National Bank of Poland: The Road to Indirect Instruments, by Piero Ugolini. 1996.
143. Adjustment for Growth: The African Experience, by Michael T. Hadjimichael, Michael Nowak, Robert Sharer, and Amor Tahari. 1996.
142. Quasi-Fiscal Operations of Public Financial Institutions, by G.A. Mackenzie and Peter Stella. 1996.
141. Monetary and Exchange System Reforms in China: An Experiment in Gradualism, by Hassanali Mehran, Marc Quintyn, Tom Nordman, and Bernard Laurens. 1996.
140. Government Reform in New Zealand, by Graham C. Scott. 1996.
Note: For information on the title and availability of Occasional Papers not listed, please consult the IMF Publications Catalog or contact IMF Publication Services.