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Uncertainty over output gap and structural-balance estimates remains elevated

Darvas, Zsolt, (2019), “Uncertainty over output gap and structural-balance estimates remains elevated“, Bruegel.org, June

The EU fiscal framework strongly relies on the structural budget balance indicator, which aims to measure the ‘underlying’ position of the budget. But this indicator is not observed, only estimations can be made. This post shows that estimates of the European Commission, the IMF, the OECD and national governments widely differ from each other and all estimates are subject to very large annual revisions. The EU should get rid of the fiscal rules that rely on structural balance estimates and use this opportunity to fundamentally reform its fiscal framework.

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