How to Measure Public Finance Consolidation

This discussion paper provides an overview of the analytical indicators used to evaluate fiscal policy in the short, medium and long term. It focuses on their clear definition and their advantages/disadvantages, and accentuates the importance of their clear interpretation. In addition to the commonly used indicators, such as the size of measures or change in the structural balance, the paper introduces a new indicator measuring the government’s contribution to the sustainable change in fiscal position (government consolidation effort) in a given year. Despite their numerous advantages, short-term indicators do not necessarily reflect the long-term impacts of various measures. These should primarily be assessed using long-term indicators, such as fiscal gap indicators, or through the net worth concept. Despite the existence of several indicators, each and every one of them has its own raison d’etre in fiscal analyses, because they all provide answers to important analytical questions. They should therefore be treated as mutually complementary. Some of the indicators assume the existence of a no-policy-change scenario, which is an essential element in the evaluation of measures implemented by the government. For this reason, such a scenario must have a detailed structure and all its underlying assumptions should be clearly spelled out.