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Posts tagged with: "FYFSGDA188S"

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The federal budget balance as a fraction of GDP

Tracking data from two sources with two different calendars

The FRED Blog has discussed how many weekdays there are per month, quarter, and year. (It may seem trivial, but when you work with data, you need to be precise about federal and local holidays and how weekends shake out in a given month.)

Today, we consider two data sources, each with its own calendar year.

The FRED graph above shows the balance of the federal government budget as a percent of GDP. To calculate the budget balance, we subtract the value of federal net outlays from the value of federal receipts. Because those receipts and outlays change with the overall level of economic activity, we divide their difference by GDP and multiply by 100 to show it at as annual percentage.

And here’s the rub: Federal receipts and net outlays are reported by the Office of Management and Budget (OMB) for the fiscal year, which runs from October of the previous year to September of the current year. But GDP is reported by the Bureau of Economic Analysis (BEA) for the calendar year, which—just to make sure we’re on the same page—runs from January to December. So each organization counts 12 months for each year but starts counting on different dates.

If you want to learn more, keep on reading…

The second FRED graph shows the annual balance of the federal government budget as a percent of GDP using both calendars: Data from the fiscal year is in red, and data from the calendar year is in blue. The lines are very similar in value, meaning that the use of two different calendars has a small impact on the calculation overall. Small though it may be, the difference is largest for the calendar year at the end of a recession. At that time, the automatic stabilizers of fiscal policy have widened the gap between federal revenues and outlays while GDP is starting to rebound.

How these graphs were created: For the first graph, search for and select “Federal Receipts.” From the “Edit Graph” panel, use the “Edit Line 1” tab to customize the data by searching for and selecting “Federal Net Outlays” and “Gross Domestic Product (GDPA).” Next, create a custom formula to combine the series by typing in (((a-b)/1000)/c)*100 and clicking “Apply.”
For the second graph, from FRED’s main page, browse data by “Release.” Search for ”Debt to Gross Domestic Product Ratios” and check the two boxes under “Federal Surplus or Deficit [-] as Percent of Gross Domestic Product.” Last, click “Add to Graph.”

Suggested by Diego Mendez-Carbajo, Maria Arias, and Chris Russell.

View on FRED, series used in this post: FYFR, FYFSDFYGDP, FYFSGDA188S, FYONET, GDPA

Debt- and deficit-to-GDP dynamics

Several historical examples show that financial crises generate large increases in private and public debt that take many years and sometimes drastic measures to resolve. The recent global financial crisis, which began in 2007, was no exception: The public debt of the affected countries increased to levels not seen for decades.

During a recession, tax revenue falls because of the contraction of GDP and governments also increase spending. The combination of these two forces increases deficits, and debt-to-GDP ratios can rise quickly as a result.

This mechanism can be seen very clearly in these scatter diagrams: Debt-to-GDP ratios (vertical axis) and deficit-to-GDP ratios (horizontal axis) are shown for the United States (red dots), Japan (blue dots), and the euro area (green dots) for several years after 2001. The changes in the two ratios are more marked for the recent financial crisis than what would be seen for plain vanilla recessions (such as the U.S. recession in 2001) that are not associated with such crises. As the recession ended, the deficit ratios started to decline because tax revenue grew and primary deficits (excluding interest) contracted. But the debt ratios kept rising, in part because primary balances are still negative and in part because the burden of interest is now larger.

How this graph was created: Search for and select the appropriate series for central government debt for each country and then add the appropriate series for the deficit-to-GDP ratio. Select “scatter” for the graph type in “settings.” The width of the lines connecting the dots can be adjusted in the settings of the first series.

Suggested by Silvio Contessi

View on FRED, series used in this post: FYFSGDA188S, GFDEGDQ188S, GGGDTAEZA188N, GGGDTAJPA188N, GGNLBAEZA188N, GGNLBAJPA188N

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