Cláudia Braz

A Disaggregated Framework for the Analysis of Structural Developments in Public Finances

In this paper, we present a disaggregated framework for the analysis of past and projected structural developments in the most relevant revenue and expenditure categories and the fiscal balance. The framework, in particular, distinguishes between the effects of discretionary fiscal policy and of macroeconomic and other developments and is sufficiently standardised to be used in multi-country studies. Here, it is applied to Belgium, Finland, Germany, Italy, the Netherlands and Portugal over the period 1998 to 2004. During this period the structural primary balance ratio clearly worsened in all countries except Finland. In Belgium, Italy and the Netherlands, both revenue and expenditure contributed to the deterioration of the structural primary balance. In Germany the large deterioration in revenue was partially offset by the decline in the structural primary expenditure ratio, while the opposite was true for Portugal. The analysis highlights the various factors that contributed to these developments.

Public Expenditure and Fiscal Consolidation in Portugal

By analysing the evolution of public expenditure from 1990 to 2004, Cunha and Braz aim at assessing the Portuguese current fiscal position and the prospects for future developments in the absence of corrective measures and structural reforms. They argue that the current difficult budgetary situation in Portugal is largely due to the lack of fiscal consolidation before 2002. Between 1990 and 2004 the cyclically adjusted current primary expenditure rose by nearly 11 percentage points of nominal trend GDP, mainly owing to the increase in social payments and in the compensation of employees. Most of the growth in social payments reflects the evolution of pension expenditure in both the private sector and the civil servants systems. This growth trend is expected to continue in the coming years. The structural measures on the expenditure side undertaken since 2002 concern the civil servants pension system, the National Health Service, the subsidisation of interest on loans for house purchase and the limits on municipality financing.