Darvas, Zsolt.<\/p>\n
he so-called structural balance of the general government aims to measure the \u2018underlying\u2019 position of the budget by excluding the impact of the economic cycle and one-off measures, like bank recapitalisation costs. It has a crucial role in designing fiscal consolidation strategies in the EU (see the Annex at the end).<\/p>\n
Late September, a\u00a0report in WSJ\u00a0suggested that the methodology for calculating the structural balance may be revised to make it more reasonable, which would have also eased austerity in hard-hit European countries. The proposal has been\u00a0rejected\u00a0a few days later, but the debate on the methodology and its impact on actual fiscal policy will certainly come back soon. Let me try to explain and illustrate the main issues in a simple way and formulate a more general critique of the calculation of the output gap (the difference between actual and potential output), which is the main input to structural balance calculations. Also, I propose an alternative.<\/p>\n