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C 155 E/56 Official Journal of the European Union EN 3.7.


(2003/C 155 E/062) WRITTEN QUESTION E-2869/02

by Christopher Huhne (ELDR) to the Commission

(11 October 2002)

Subject: Relationship between growth and budget balance

Will the Commission estimate, on the basis of its own computer modelling or other research, the impact
for each Member State of a one percentage point change in GDP growth on the budget balance as a
percentage of GDP?

Answer given by Mr Solbes Mira on behalf of the Commission

(12 November 2002)

The estimates on the responsiveness of the budget balance to gross domestic production (GDP) growth are
based on tax and expenditure elasticities calculated by the Organisation for Economic Cooperation and
Development (OECD). As can be seen from the table below, the average elasticity for the Union is around
0.5. The degree of budgetary sensitivity is closely linked to the share of government revenues and
expenditure in GDP. For example, Scandinavian countries which are characterised by a large government
sector also tend to have larger elasticities in the range between 0,7 to 0,9 (1).

These elasticities must be understood as an estimate of the average budgetary response to changes in the
output gap, since they are to some extent dependent on the source of GDP growth. For example, the
budgetary impact will be smaller if GDP growth accelerates due to increased export (or investment) growth
because in this case, no tax category is directly affected. Correspondingly, the budgetary impact will be
higher if growth is driven by private consumption since in this case indirect tax revenues will increase
directly. Simulation results with the Commission’s QUEST model indicate that in the case of growth driven
by private consumption the budgetary sensitivity increases to 0,7 for the Union average, while in the case
of export or investment led growth the budgetary sensitivity drops to 0,28 or 0,19 respectively (2).

Budgetary sensitivities in the EU


0,7 0,9 0,5 0,4 0,4 0,4 0,4 0,4 0,8 0,3 0,3 0,7 0,8 0,5 0,5
Source: Public Finances in EMU 2002.

(1) For more detailled discussion, see Public Finances in EMU-2002 No 3, Chapter 3. The measurement of cyclically
adjusted budget balances.
(2) Brunila A., M. Buti and J. in ’t Veld (2002), ‘Fiscal Policy in Europe: how effective are automatic stabilisers?’,
Economic Papers No 177, September 2002, European Commission, Brussels.

(2003/C 155 E/063) WRITTEN QUESTION P-2875/02

by Nelly Maes (Verts/ALE) to the Commission

(7 October 2002)

Subject: Illegal government support for the FN weapons factory

It has recently come to light that Delcredere, the Belgian export credit insurer, has issued a government
guarantee within the framework of the agreement concluded between FN Herstal and the government of
Nepal to supply 5 500 Minimi machine guns. This was not only a breach of the Code of Conduct on the
Arms Trade but the purchase sum of EUR 15,4 million will also be paid even if the weapons are not
actually delivered.