The reasons of high values of stock-flow adjustment – the conclusions from case studies
Purpose – The paper presents the analysis of the situations of high values of SFA observed in European Union countries during the years 2002-2017. They were assessed in terms of their specific character as well as due to their frequency and the reasons of their occurrence. The analysis aimed at isolating those economic factors that create the risk of the occurrence of high SFA levels and thus contribute to the increase of public debt to a considerably larger degree than the budget deficit would imply.
Research method – The analysis is based on Eurostat data concerning the values of SFA for European Union countries. In the years 2002-2017 it comprised 431 observations. They have been analyzed in terms of the average values (both nominal and absolute), the share of positive and negative values and the frequency of the occurrence of high values in general and in particular countries. Subsequently, using case study methodology the Author analyzed the situation of countries with considerable shares of high values of SFA.
Results – The analysis has shown that high values of SFA are most frequently the effect of state interventions during economic crises. In most countries the increase of SFA values was temporary (e.g. in Ireland). The second reason is the risk of bankruptcy. Such patterns were observed in Greece and Cyprus. While in Cyprus the increase of SFA values was only temporary, in Greece the position still remains difficult. The third reason of an increase in SFA values lies in the investments made by pension system institutions. Such situations took place, among others, in Finland and Luxembourg.
Originality / value – The added value of the paper is connected with the case studies of countries with particularly high values of SFA. They were selected on the basis of data comprising 16 years and in total there were 431 observations for 28 countries of the European Union.
von Hagen J., Wolf G.B., 2004, What do deficits tell us about debt? Emirical evidence on creative accounting with fiscal rules in the EU?, “Deutsche Bundesbank Discussion Paper”, Series 1: Studies of the Economic Research Centre, no. 38.
von Hagen J., Wolf G.B., 2006, What do deficits tell us about debt? Empirical evidence on creative accounting with fiscal rules in the EU, “Journal of Banking & Finances”, vol. 30, iss. 12, pp. 3259-3279.
Jaramillo L., Mulas-Granados C., Kimani E., 2016, The Blind Side of Public Debt Spikes, “IMF Working Paper”, vol. 202, pp. 1-32.
Maltritz D., Wüste S., 2015, Determinanst of budget deficits in Europe: The role and relations of fiscal rules, fiscal council, creative accounting and the Euro, “Economic Modelling”, vol. 48, pp. 222-236, DOI: 10.1016/j.econmod.2014.12.001.
Raport roczny. Dług publiczny, 2006-2018, Ministerstwo Finansów, Warszawa.
Reischmann M., 2016, Creative accounting and electoral motives: Evidence from OECD countries, “Journal of Comparative Economics”, vol. 44, iss. 2, pp. 243-257, DOI: 10.1016/j.jce.2015.07.001.
Reporting of Government Deficits and Debt Levels, 2018, https://ec.europa.eu/eurostat/documents/1015035/9306962/PL-2018-10.pdf [date of entry: 20.12.2018].
Rybacek V., 2015, How to stabilize debt while running deficit, “Statistika”, vol. 95(3), pp. 6-15.
Stock-flow adjustment (SFA) for the Member States, the euro area and the EU28, 2005-2018, http://ec.europa.eu/eurostat/ [date of entry: 30.01.2018].
Strategia zarządzania długiem sektora finansów publicznych, 2005-2018, Ministerstwo Finansów, Warszawa
Treaty on European Union, 1992, Official Journal C 191, 29/07/1992.
Vade Mecum on the Stability and Growth Pact, 2018, Publications Office of the European Union, European Commission, Luxembourg.
Weber A., 2012, Stock-Flow Adjustments and Fiscal Transparency: A Cross-Country Comparison, “IMF Working Paper”, vol. 39, pp. 1-40.
www 1, https://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=teina225&plugin=1 [date of entry: 20.12.2018].
www 2, https://ec.europa.eu/eurostat/web/products-datasets/-/tipsnf10 [date of entry: 15.12.2018].