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The Reliability of EMU FIscal Indicators: Risks and Safeguards

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  • Fabrizio Balassone

    ()
    (Banca d'Italia - Economic Research Department)

  • Daniele Franco

    ()
    (Banca d'Italia- Economic Research Department)

  • Stefania Zotteri

    ()
    (Banca d'Italia - Economic Research Department)

Abstract

The reliability of EMUÂ’s fiscal indicators has been questioned by recent episodes of large upward deficit revisions. This paper discusses the causes of such revisions in order to identify ways to improve monitoring. The computation of EMUÂ’s deficit indicator involves the assessment of accrued revenue and expenditure and the identification of transactions in financial assets. Both can open margins for opportunistic accounting. However, crosschecks between deficit and changes in gross nominal debt (the other fiscal indicator used in EMU) can reduce the scope for window dressing. Simple comparison of deficit and changes in debt can readily spotlight large inconsistencies in fiscal data. Nevertheless, consistency checks must go deeper than simple comparison, since different items in the reconciliation account between deficit and change in debt can offset each other. Econometric evidence suggests that such offset may indeed have been used to reduce the visibility of deficit-specific window dressing. Attention to the quality of statistics has increased in recent years, also in the context of the reform of the Stability and Growth Pact. In this context, the paper argues that detailed analysis of the reconciliation account between deficit and change in debt is crucial to the effectiveness of monitoring.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 633.

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Date of creation: Jun 2007
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Handle: RePEc:bdi:wptemi:td_633_07

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Keywords: EMU; fiscal rules; fiscal indicators; stock-flow adjustment;

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References

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  1. von Hagen, Jurgen & Harden, Ian J., 1995. "Budget processes and commitment to fiscal discipline," European Economic Review, Elsevier, vol. 39(3-4), pages 771-779, April.
  2. Fabrizio Balassone & Daniele Franco & Stefania Zotteri, 2006. "EMU fiscal indicators: a misleading compass?," Empirica, Springer, vol. 33(2), pages 63-87, June.
  3. Buti, Marco & Martins, Joao Nogueira & Turrini, Alessandro Antonio, 2006. "From Deficits to Debt and Back: Political Incentives under Numerical Fiscal Rules," CEPR Discussion Papers 5809, C.E.P.R. Discussion Papers.
  4. Roberto Golinelli & Sandro Momigliano, 2006. "Real-time determinants of fiscal policies in the euro area: Fiscal rules, cyclical conditions and elections," Temi di discussione (Economic working papers) 609, Bank of Italy, Economic Research and International Relations Area.
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Cited by:
  1. Teresa Leal & Javier J. Pérez & Mika Tujula & Jean-Pierre Vidal, 2008. "Fiscal Forecasting: Lessons from the Literature and Challenges," Fiscal Studies, Institute for Fiscal Studies, vol. 29(3), pages 347-386, 09.
  2. International Monetary Fund, 2012. "Fiscal Consolidation in Southeastern European Countries," IMF Working Papers 12/113, International Monetary Fund.
  3. Ian Lienert, 2010. "Should Advanced Countries Adopt a Fiscal Responsibility Law?," IMF Working Papers 10/254, International Monetary Fund.
  4. Cimadomo, Jacopo, 2011. "Real-time data and fiscal policy analysis: a survey of the literature," Working Paper Series 1408, European Central Bank.
  5. Sandro Momigliano & Pietro Rizza, 2007. "Temporary measures in Italy: buying or losing time?," MNB Conference Volume, Magyar Nemzeti Bank (the central bank of Hungary), vol. 1(1), pages 61-71, December.
  6. Laurent Paul & Christope Schalck, 2007. "Transfers to the government of public corporation pension liabilities: The French case study," MNB Conference Volume, Magyar Nemzeti Bank (the central bank of Hungary), vol. 1(1), pages 72-80, December.
  7. Pavel Dvořák, 2010. "Off-Budgetary Reasons of the Growing Public Indebtedness," Politická ekonomie, University of Economics, Prague, vol. 2010(4), pages 522-541.
  8. Beetsma, Roel & Bluhm, Benjamin & Giuliodori, Massimo & Wierts, Peter, 2011. "From First-Release to Ex-Post Fiscal Data: Exploring the Sources of Revision Errors in the EU," CEPR Discussion Papers 8413, C.E.P.R. Discussion Papers.
  9. Lu�s Gordo Mora & Jo�o Nogueira Martins, 2007. "How reliable are the statistics for the Stability and Growth Pact?," European Economy - Economic Papers 273, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.

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