interest rate adjustments, the structural deficit can be expressed in terms of the operational budget netted out of the estimated cyclical component of the budget balance as follows: In theory, the cyclical component of the budget deficit is derived from the output gap attributed to business cycle: _d c_ , _t_   _GGAP_   _RGAP_ . The output _GAP_ is derived by taking the difference between actual and potential (or capacity) output expressed in proportion of potential * * * output  _GAP_  ( _Y_  _Y_ ) _Y_  , where _Y_ is the actual output and _Y_ is the potential output [Blejer and Chu (1988)]. Elasticities  _G_ and  _R_ denote the cyclical response of expenditure and revenue ratios to a one-percentage point increase in the cyclical output gap.

In practice, it is difficult to estimate the potential output in Sub-Saharan Africa, where most countries operate far below capacity utilization, with extremely high unemployment rates. Moreover, potential output estimates are generally based on production function models, which require specifying output in terms of underlying factor inputs and total factor productivity. In order to circumvent the daunting task of estimating production functions in a context of largely underutilized capacities, we derive measures of structural deficit using a nonparametric method. In practice, the cyclical component of the primary deficit is purged by smoothing the data by means of Hodrick-Prescott filter.

In what follows we use estimates of operational balances and structural balances to assess the nature and stability of the relationship between fiscal performances and growth across SubSaharan African countries. From equation (1), the estimation of operational balance is based on the standard methodology. Effects of collection lags on government revenues and public deficits are not taken into account in part because collection lags in domestic resource mobilization primarily concern corporate taxes. Furthermore and in addition to consistency problems associated with reporting on collection time, government data on revenues and expenditures are not sufficiently disaggregated to allow a fair comparison across countries.

The empirical analysis and estimation are based on a sample of 14 countries selected across SubSaharan Africa on the basis of data quality.<sup>14</sup> Operational and structural budget deficit are calculated for each country, and the results are expressed as a percentage of GDP to allow crosscountry comparisons. Real GDP per capita, public and private investment variables are taken from the World Bank World Development Indicator database. The data on public finance are taken from Government Financial Statistics (GFS) and World Economic Outlook (WEO).

Table 1 provides the results averaged over the period 1980-2007 (a long-term trend of the fiscal adjustment and growth nexus is also assessed from Figure 1 below). Columns 1 and 2 provide estimates of operational and structural balances averaged over the sample period for each country. The following columns (3 and 5) provide a nonparametric measure of correlation assessing the

> 14 This set of sampled countries include: Benin, Botswana, Central African Republic, Cote d’Ivoire, Cameroon, Ethiopia, Gabon, Gambia, Ghana, Kenya, Mozambique, Nigeria, Rwanda and Senegal.

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