HM Treasury

Pre-Budget Report

24 November 2008

Public finances and the cycle

Under the Code for fiscal stability, the Government is required to publish estimates of fiscal aggregates adjusted for the effects of the economic cycle. This working paper updates previous HM Treasury estimates of the effects of the economic cycle on the public finances. The remainder of the paper explores other methodological issues related to cyclical-adjustment. Alternative approaches to cyclical-adjustment used by institutions such as the OECD, IMF and ECB are found to produce similar results to HM Treasury’s estimates. The paper also examines the effect of asset prices on measures of the structural fiscal balance.

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