Government budget balance
The government budget balance, also referred to as the general government balance,[1] public budget balance, or public fiscal balance, is the difference between government revenues and spending. For a government that uses accrual accounting (rather than cash accounting) the budget balance is calculated using only spending on current operations, with expenditure on new capital assets excluded.[2]: 114–116 A positive balance is called a government budget surplus, and a negative balance is a government budget deficit. A government budget presents the government's proposed revenues and spending for a financial year.
This article is about government budget balances. For trade balances, see Balance of trade. For payment balances, see Balance of payments.
The government budget balance can be broken down into the primary balance and interest payments on accumulated government debt; the two together give the budget balance. Furthermore, the budget balance can be broken down into the structural balance (also known as cyclically-adjusted balance) and the cyclical component: the structural budget balance attempts to adjust for the impact of cyclical changes in real GDP, in order to indicate the longer-run budgetary situation.
The government budget surplus or deficit is a flow variable, since it is an amount per unit of time (typically, per year). Thus it is distinct from government debt, which is a stock variable since it is measured at a specific point in time. The cumulative flow of deficits equals the stock of debt when a government employs cash accounting (though not under accrual accounting).
Primary balance[edit]
"Primary balance" is defined by the Organisation for Economic Co-operation and Development (OECD) as government net borrowing or net lending, excluding interest payments on consolidated government liabilities.[7]
Determinants of government budget balance[edit]
Dependent variables[edit]
Dependent variables include budgetary variables, meaning deficits and debts, and nominal or cyclically adjusted data.
The debt ratio, either gross (without effect of the inflation) or net, is used as a wider measure of government actions rather than measure of government deficit. Nevertheless, government generally set their yearly budget aims in flow terms (deficits) rather than in stock terms (debts). This is partly because stock markets variables are harder to target as circumstances outside direct government control (e.g. economic growth, exchange rate changes and asset price changes) affect stock variables more than flow variables.[15]
Concerning the nominal or cyclically adjusted data, the latter is preferable measure of the policy-related part of the budget and reduces the mutual partiality that may originate from the interaction between economic growth and budgets. However, there are serious warnings in estimating cyclically adjusted balances, especially defining trend/potential output.[15]
Independent variables[edit]
Concerning factors clarifying variances in budgetary results, there are budgetary, macroeconomic, political, and dummy variables.