Tuesday, August 16, 2011

Spendthrift Government?

FrédéricLN analyzes the behavior of governments of the Right and the Left in managing the French budget over the years, with corrections for growth effects and attention to the primary budget surplus or deficit (i.e., excluding service on the accumulated debt). I haven't examined his analysis carefully, but you may find the data useful.

2 comments:

bernard said...

He is a statistician, but not a macroeconomic modeller. What he is attempting to do with his "droite de tendance" is a very rough attempt at splitting deficits into two parts: a cyclical part where governments get lucky or not due to economic circumstances (automatic economic stabilisers, anyone?), and a structural part where governments essentially increase or decrease deficits permanently.

Whether inside the French administration, or at the OECD or at the EU Commission or in many other places, this is done in a more scientific way through macroeconomic modelling, including of output. The oecd economic outlook publication has for instance contained for many years estimates of the cyclical and structural budgets as a percentage of GDP and this is exactly what we should be looking at if we want to rank various governments according to how they contributed to the increase of debt.

And we should not forget that in certain circumstances it is a good idea to increase debt while in others one should aim at reducing it. Let us not forget that microeconomic truths have their way of transforming into macroeconomic fallacies. But try explaining that to the average politician who thinks running a country is like running a large company.

FrédéricLN said...

@ bernard "estimates of the cyclical and structural budgets as a percentage of GDP and this is exactly what we should be looking at"

You are absolutely true, with two reservations:

1) I wonder whether long time series of such "structural surplus" do exist; I looked for them, did not find them, but dis perhaps not find the right place.

2) The advantage of being a statistician is: raw data (that are displayed on my post). From those, you can build several likely models, and check if your conclusions are valid enough to be repeated in each of them. — I built two very basic ones (in the last table) which I would consider as extreme limits, I mean they would compose an interval where the "structural" surplus should be.

And thank you for commenting, and thanks to Art for linking the post (a two-hours work actually!).