structural balances as fiscal stance indicators.3 In other words, the question is whether objectives (a) to (d) listed above can be attained by the same indicator. Dos Reis, Manasse, and Panizza (2007) examined this question, concluding that it is not possible for a CAB obtained by subtracting only the effect of the business cycle to serve as a measure of fiscal discretion or of permanent policy change in the presence of stochastic trend shocks and structural breaks. In more general terms, the notion of a “structural balance� is inevitably ambiguous and the different objectives outlined in (a) to (d) above can be met only by different indicators. In particular, three alternative interpretations are put forward for a structural fiscal balance that have varying underlying concepts so should be measured differently: (i) a cyclically adjusted balance, (ii) a discretionary fiscal policy balance, and (iii) a permanent balance.4 These are defined in Table 1, below, on the basis of revenue and expenditure items that should be deducted from the actual (headline) budget balance.
3
It should be noted that part of the response to these questions is to acknowledge that fiscal stance indicators are better at responding to short- to medium-term issues rather than to long-term ones. For instance, fiscal sustainability issues arising from social security reforms are best measured by a different set of fiscal sustainability measures and long-term projections. 4 The distinction between short- and long-term has not been considered for the reasons given in the footnote above.
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