Fiscal sustainability and the financial cycle
BIS Working Papers No 552
A frequently neglected aspect of financial booms and busts - financial cycles - is their impact on fiscal positions. And yet, the latest financial crisis and history show that these cycles can wreak havoc with public finances. After reviewing the impact of financial cycles on fiscal positions, we offer a new tool to estimate cyclically adjusted balances, illustrate its performance, explore its strengths and weaknesses, and sketch out a way forward to measuring sustainability in a more holistic way.
JEL classification: H30, H62, E44, E52, E60
Keywords: financial cycle, financial crisis, cyclically adjusted fiscal balance