The cyclically-adjusted primary balance. A novel approach for the euro area

This paper presents novel estimates for the cyclically-adjusted primary balance for 18 countries of theEuro area over years 1999–2017. We improve the methodology adopted by the European Commission byusing quarterly rather than annual frequency data and providing accurate identification of the budgetary itemswhose response can be considered automatic to the economic cycle. This disaggregated outcome combinedwith high frequency data marks a significant improvement with respect to previous studies. The empiricalanalysis is implemented on two sub-periods to examine the impact of governments’ discretionary fiscalpolicy before and after the Great Recession. The most striking policy implication is that even though thebudgetary policy of most European countries can be qualified in principle as anticyclical, this outcome hasbeen weakened by the impact of discretionary policies of many governments especially after the crisis. Theresults are robust to the use of different de-trending methods