Cyclically Adjusted Balance of Latvia's General Government Consolidated Budget

5/2005

Abstract
This study estimates cyclically adjusted balances of Latvia's general government consolidated budget using methodologies of the ESCB and OECD and assesses the consistency of the implemented fiscal policy with the EU fiscal policy framework. During the period of rapid economic growth the Latvian government pursued fiscal expansion instead of ensuring budgetary consolidation in cyclically adjusted terms. Fiscal policy of the Latvian government has been inconsistent with the requirements of the Stability and Growth Pact and has exerted an additional pressure on consumer prices and the current account.

Key words: cyclically adjusted budget balance, Stability and Growth Pact, pro-cyclical fiscal policy, budgetary elasticity

JEL classification codes: E62, H62