Villanueva Cortés, PalomaCárdenas Del Rey, LuisRuiz Gómez, Juan Rafael2024-04-042024-04-042024-03-12Cardenas, L., Villanueva, P. and Ruiz, J. R. (2024) ‘Potential Output and Cyclically Adjusted Balance: An Application of the Updated Okun Method to Spain (1987–2022)’, Review of Political Economy, pp. 1–21. doi: 10.1080/09538259.2024.2324860.0953-825910.1080/09538259.2024.2324860https://hdl.handle.net/20.500.14352/102682The estimation of potential output is at the heart of the ongoing debate on the reformulation of fiscal rules in the European Union as it is an essential variable for their application. Spain constitutes a striking case, with a small and even positive output gap along with one of the highest unemployment rates in the European Union. To resolve this contradiction, in this article we estimate the potential output of the Spanish economy for the period 1987Q2–2022Q4 by means of the Updated Okun Method. Our results indicate that both the output gap and the cyclically adjusted balance are much higher than what European institutions estimate. Consequently, Spain has much more fiscal space to implement expansionary fiscal policies.engjournal article1465-3982https://www.tandfonline.com/doi/full/10.1080/09538259.2024.2324860open accessE24E32E6Potential GDPStructural balanceOkun’s lawSpainEconomía53 Ciencias Económicas