Abstract

This paper gives a new interpretation of the Stability Pact using the cyclically adjusted budget balance for the Italian economy. We single out the influence of the cycle on the government budget revenue and expenditure according to the European Community (EC) and OECD methods. The sample period, 1996-2003, includes past data and forecasts according to IRS (October 1999) and DPEF for the years 1999-2003. We check for the robustness and for the possibility of bias of the results with a new methodology, that allows to distinguish between cyclical and structural component of the budget deficit. We also check for the effects of each component of the aggregate demand on the structural balances. We finally use EC's method to evaluate the measures planned on the DPEF 2000-2003 related to the EC Stability Pact. The result is that by replacing actual by structural deficit we fulfill the budget requirements for the period 2000-2001, but not afterwards.