The measurement and interpretation of structural budget balances

To calculate structural budget balances, outlays and revenues have to be adjusted for transitory swings in economic activity. two critical inputs are required: a measure of potential output, and elasticity estimates to adjust revenues and outlays for the business cycle. a simple filtering technique is described for decomposing output into potential and cyclical components. the estimates of budget elasticities are based on time-varying parameter regression models. an application to austrian data illustrates the suggested procedures.;