Staff working paper No. 34
By Joanne Paisley and Chris Salmon
This paper examines the methodology of cyclical adjustment of fiscal balances. We find that the crucial assumption underlying any estimates of the cyclically adjusted balance (CAB) is the measure of the output gap. Estimates for the UK are presented, suggesting that when the economy returns to trend the PSBR should fall by between 3% to 4.5% of GDP from its position at the end of 1992.