The misleading operating deficit methodology

Abstract

The concept of operational deficit is taken by many economists as the relevant
concept of public deficit. It is argued in this paper that the concept is flawed and that its
current method- ology of estimation is inadequate. In 1990, for instance, the Government
deducted an inflation of 1355% from the nominal deficit (PSBN), but only accounted an
expense of 837% as monetary correction in the expenditure side, to arrive at an estimate of
a 1,2% operational “surplus” over GDP. It is argued that such number is illusory and that a
better alternative is rouse an ex-ante concept of deficit for policy decisions.

JEL Classification: H62; H60.