The Fiscal Advisory Council’s working paper series serves to publish relevant scientific work. Papers published in the series primarily discuss fiscal policy issues with a special focus on Austria. They are intended to promote scientific discourse. Opinions expressed by the authors of working papers do not necessarily reflect the official viewpoint of the Fiscal Advisory Council.
Quantifying the impact of the 2021-22 inflation shock on Austria´s public finances
Holler, Reiss – Working Paper 10 – April 2023
Higher inflation tends to contribute to higher growth in nominal government revenue, but its overall effect on public finances is ambiguous. We show that while the current inflation shock has a small positive short-run effect on the budget balance, it is clearly detrimental to public finances in the medium to long run. The decline in real economic growth caused by the current inflationary shock aggravates its budgetary impact further. In addition, our results highlight that the recently introduced inflation indexation of income tax brackets and family benefits substantially contributes to the negative impact of higher inflation on public finances.
Year of publication: 2023
Don´t blame the government!? An Assessment of debt forecast errors with a view to the Economic Governance Review
Bachleitner, Prammer – Working Paper 9 – March 2023
In view of the increased importance of debt developments in the EU governance framework, this paper investigates the accuracy and the main causes of forecast errors in (government) debt projections. We find a positive average debt forecast error for European Union member states, which increases with the projection horizon. Underestimation of debt growth is particularly relevant for countries with high government debt. The main drivers of the debt forecast errors seem to be outside direct government control: Wrongly projected overall GDP developments and stock flow adjustments - a factor which has not been considered in the literature so far. Moreover, the high uncertainty in debt forecasts is also inherent in the European Commission’s benchmark forecasts: only their now-cast remains unbiased.
Year of publication: 2023
How effective were fiscal support measures in absorbing the inflation-induced rise in consumption expenditures in 2022?
Maidorn, Reiss – Working Paper 8 – December 2022
We analyze the distributional impact of the substantial fiscal measures implemented in Austria to support household incomes amidst the sizable increase in inflation in 2022. A large part of these measures were universal transfers benefiting all households. Therefore, when we look at absolute amounts, low-income households profited from the fiscal measures to a similar extent like high-income households. When we look at the ratio of transfers to disposable incomes, low-income households profited much more. Furthermore, within the lower income quintiles, households more affected by the inflation shock received lower additional transfers than those less affected by the inflation shock. Overall, the fiscal measures did not fully offset the inflation-induced increase in consumption expenditure for households severely affected by the inflation shock across the income spectrum, including those in the bottom quintile.
Year of publication: 2022
The FISK OLG model – a numerical overlapping generations model for Austria – model description v2.2
Schuster – Working paper 7 – December 2021
This paper provides the technical description of a numerical overlapping generations (OLG) model of the Auerbach-Kotlikoff type for Austria. The FISK OLG model has been tailored for quantifying medium and long-run effects of demographic change and structural reforms. Decisions of households and firms are microfounded. The model is dynamic and solved in general equilibrium. Particular emphasis was put on a detailed modeling of government revenues and expenditure.
Year of publication: 2021
Historical Macro and Fiscal Database for Austria (HMFDA) (XLSX, 0.1 MB)
On fiscal multipliers in New Keynesian small open economy models
Schuster – Working paper 6 – October 2019
This paper uses a medium-sized New Keynesian general equilibrium model of a small open economy in a monetary union to systematically quantify the sensitivity of various fiscal multiplier measures to the model's key assumptions and parameters for an array of fiscal instruments. Using a unified framework circumvents the typ- ical problems of diverging parameterizations, model extensions, shock definitions, fiscal reaction functions or multiplier measurements that come with inference from cross-study comparison and make results hard to compare. Linearity of multipliers in most parameters allows us to quickly compute rough multiplier estimates for alternative parameterizations by simply using our reported local sensitivities and a pocket calculator. Reflecting the synthesis character of the New Keynesian paradigm, the key parameters that quantitatively determine the size of multipliers differ considerably between the short and the long run. We show that ex-post multipliers should be preferred over ex-ante multipliers when ranking fiscal instruments. Rankings are sensitive to the considered time horizon, shock persistence and anticipation assumptions.
Year of publication: 2019
Fiscal multipliers in a small open economy: the case of Austria
Čapek, Crespo Cuaresma, Holler, Schuster – Working paper 5 – October 2019
We estimates fiscal multipliers for Austria in a framework of model uncertainty emanating from the choice of a particular econometric model to obtain point estimates of the reaction of GDP to shocks in fiscal variables. We present a comprehensive framework which allows to assess the effects of different multiplier definitions and choices related to the data, the model employed, and further technical choices associated with the specification of the model exert on fiscal multiplier estimates. The mean present-value government spending multiplier over all models entertained, based on around 3000 estimates, is 0.68. Estimates of the peak spending multiplier for Austria tend to be larger than present-value spending multipliers, with a mean value of 0.85. The magnitude of the present-value tax multiplier is relatively high, with an average value across specifications of -1.12 and the mean peak tax multiplier is -0.54 for all specifications used. In absolute value, multiplier estimates tend to be larger if they are estimated using the subset of models with the best out-of-sample predictive ability.
Year of publication: 2019
Long-run fiscal consequences of refugee migration – The case of Austria
Holler, Schuster – Working paper 4 – December 2018
We use a rich numerical OLG model of Auerbach-Kotlikoff type to simulate the long-run effects of refugee migration starting 2015 for a country with an aging society and a generous welfare system, namely Austria. The respective refugee cohorts are on average younger, less educated and less productive than both natives and the average migrant. The net fiscal contribution results from two opposing effects: a positive demographic effect which is counteracted by worse labor market outcomes. We robustly find that public debt is higher throughout the simulation horizon 2015-2060 compared to the baseline. We further analyze the group-specific welfare consequences resulting from differentiated wage effects.
Year of publication: 2018
Forecasting the term-structure of euro area swap rates and Austrian yields based on a dynamic Nelson-Siegel approach
Holler, Nebenführ, Radek – Working paper 3 – September 2018
We employ an extended Nelson-Siegel model to produce a macro-financial framework for forecasting the euro area term-structure of interest rates and the Austrian yield curve, with a view to enabling risk management analyses and determining an optimal debt management strategy. We determine the dynamics of the term-structure by the movements of the level, slope and curvature parameters, influenced by the cyclical position of the economy and the price level. Long-term interest rates are based on the assumption that the level, slope and curvature of the yield curve and macroeconomic variables converge to their historic mean. Using in-sample and out-of-sample forecast benchmarking, we find that our model clearly outperforms the expectations hypothesis of the term-structure of the interest rates (forward rate) forecast, while a constant expectations (random walk) forecast appears to produce a superior out-of-sample performance, partly due to the existence of different policy regimes in our data sample. We then use our model to forecast the term-structure of euro area interest rates and the Austrian yield curve until 2028.
Year of publication: 2018
What drives forecast errors and ex-post-revisions of structural balances in the euro area?
Maidorn, Reiss – Working paper 2 – November 2017
Using vintages of the EC projections from autumn 2007 to spring 2016, we analyze both ex-post-revisions and forecast errors of the level of and the change in the structural balance in the EA-12. Our main findings are: In general, ex-post revisions in structural balances were mainly driven by output gap revisions, while projection errors are to a significant extent driven by other factors. Not surprisingly, the role of potential output revisions shrinks when looking at the change in the structural balance, as revisions of annual potential growth tend to be smaller than level revisions. Primarily due to other factors than potential growth revisions, the mean absolute projection errors on this indicator are sizeable, and for some countries they are above the official margin of error applied on the adjustment path to the MTO even in the autumn projections for the current year. While a more detailled analysis indicates a significant role of expenditure projections in this context, projection errors based on indicators similar to the “expenditure benchmark" in the SGP are substantially smaller than for the change in the structural balance. These uncertainties may shed some doubt on how much the EU Fiscal Governance should rely on projections of “fiscal efforts".
Year of publication: 2017
Variable rate debt to insure the government budget against macroeconomic shocks
Fenz, Holler – Working paper 1 – June 2017
Inspired by the fiscal insurance theory of public debt management we focus on the role of debt management in insuring the government budget against business cycle fluctuations. In particular we analyze the potential of inflation-indexed and short-term interest-rate-linked debt to hedge the Austrian government budget against macroeconomic demand, supply and monetary policy shocks. By employing a multi-country BVAR model for the Austrian and euro area economy over the period 1999 to 2016 we find that both instruments are able to hedge a substantial part of cyclical budget balance dynamics. The hedging potential of both instruments differs considerably when specific drivers of business cycle fluctuations are analyzed. In case of demand shocks both instruments have the potential to insure the government budget, while in case of supply shocks and monetary policy shocks this is only true for interest-rate-linked debt and inflation-indexed debt, respectively.
Year of publication: 2017
The Importance of Lease Financing for Austrian Municipalities
Grossmann – Monetary Policy and the Economy Q1/08
Year of publication: 2008
Administration reform and pension reform of the public sector and financing the health care sector (German version)
Hauth, Grossmann – September 2007
Year of publication: 2007
Fiscal Spending Rules in Europe
Grossmann, Hauth – Monetary Policy and the Economy Q4/05
Year of publication: 2005
Administrative reform: saving requirements and potential
Frisch, Hauth – August 2002
Year of publication: 2002
Austrian public debt management reflects the conditions of euro area financial markets (German version)
Hauth, Kocher – March 2002
Year of publication: 2002
Austria´s Sovereign Debt-Management against the Background of Euro Area Financial Markets
Hauth, Kocher – Focus on Austria 2/2001
Year of publication: 2001
