Fiscal Council paper discusses revision of the fiscal rules and their adequacy for Estonia July 28, 2020

The Fiscal Council has published its first occasional paper. This paper is directed at a large audience. The paper presents some fundamental macroeconomic concepts and discusses how they fit with the existing fiscal rules if alternative business cycle theories are applied. Concepts such as potential output and the structural budget position are prominent in the fiscal rules and, thus, they are central in the work of the Fiscal Council. The paper considers how those rules can be improved in general and in the specific case of the Estonian economy. The relevance of these topics has just grown significantly as the European Union and national governments are planning to deploy massive fiscal stimulus programs as a reaction to the ongoing economic crisis.

FISCAL COUNCIL OCCASIONAL PAPER 1. The Business Cycle, Potential Output and the Output Gap: Different Theories, Different Rules. Ricardo Vicente