Cyclically Adjusted Fiscal Balance: OECD and ESCB Methods

The paper considers the impact of the business cycle on Czech fiscal balance in the past decade. The authors employed two different calculation methods in their analysis: an OECD and an ESCB method. Two crucial findings emerged from the analysis. First, the estimates of cyclically adjusted deficits in the Czech Republic proved their robustness, because both our calculation methods, although being philosophically different, provided very similar results. Sharply deteriorating Czech budget deficits are basically structural in nature, i.e., they are independent of the business cycle. Moreover, another hypothesis was confirmed: Czech fiscal policy exhibits mainly pro-cyclical features. As the paper further documents, both basic assessments held true even when quasi-fiscal deficits were included in the analysis.