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Fiscal sustainability and the accuracy of macroeconomic forecasts: do supranational forecasts rather than government forecasts make a difference?

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  • Carlos Fonseca Marinheiro

    ()
    (GEMF/Faculdade de Economia, Universidade de Coimbra, Portugal)

Abstract

Credible fiscal plans that aim at restoring fiscal sustainability will be essential to counter the present increase in debt levels all across Europe. The macroeconomic scenario of such plans will be crucial. This paper assesses whether there is any advantage in delegating (part of) such power to supra-national forecasts. The evidence on the relative performance of the European Commission’s (EC) growth forecast is rather mixed, with considerable variation at the country level. Some national government forecasts (France, Italy, and Portugal) perform worse in terms of descriptive statistics than the EC forecast for all forecast horizons. For the year ahead the EC growth forecast is better than the official forecasts for almost ¾ of the EU-15 countries. All in all, since the EC forecast appears to be a good benchmark, in order to reduce the (optimistic) forecast bias, national governments could be forced to justify any large (optimistic) deviation from this benchmark when presenting their respective national stability and growth programmes.

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Bibliographic Info

Paper provided by GEMF - Faculdade de Economia, Universidade de Coimbra in its series GEMF Working Papers with number 2010-07.

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Length: 32 pages
Date of creation: May 2010
Date of revision:
Publication status: Published in Journal of Sustainable Economy 3(2): 185-209, 2011.
Handle: RePEc:gmf:wpaper:2010-07

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Keywords: Sustainability of public debt; Fiscal policy; Stability and Growth Pact; Fiscal forecasting; forecast evaluation; real-time data.;

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References

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  1. Lars Jonung & Martin Larch, 2004. "Improving fiscal policy in the EU: the case for independent forecasts," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 210, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  2. Carlos Marinheiro, 2008. "The stability and growth pact, fiscal policy institutions and stabilization in Europe," International Economics and Economic Policy, Springer, Springer, vol. 5(1), pages 189-207, July.
  3. A. Melander & G. Sismanidis & D. Grenouilleau, 2007. "The track record of the Commission's forecasts - an update," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 291, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  4. Michael Artis & Massimiliano Marcellino, 2001. "Fiscal forecasting: The track record of the IMF, OECD and EC," Econometrics Journal, Royal Economic Society, Royal Economic Society, vol. 4(1), pages S20-S36.
  5. Athanasios Orphanides & Simon van Norden, 2002. "The Unreliability of Output-Gap Estimates in Real Time," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 569-583, November.
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  7. Lu�s Gordo Mora & Jo�o Nogueira Martins, 2007. "How reliable are the statistics for the Stability and Growth Pact?," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 273, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  8. Forni, Lorenzo & Momigliano, Sandro, 2004. "Cyclical sensitivity of fiscal policies based on real-time data," MPRA Paper 4315, University Library of Munich, Germany.
  9. Allan Timmermann, 2007. "An Evaluation of the World Economic Outlook Forecasts," IMF Staff Papers, Palgrave Macmillan, vol. 54(1), pages 1-33, May.
  10. Lukas Vogel, 2007. "How do the OECD Growth Projections for the G7 Economies Perform?: A Post-Mortem," OECD Economics Department Working Papers 573, OECD Publishing.
  11. Roel Beetsma & Massimo Giuliodori & Peter Wierts, 2009. "Planning to cheat: EU fiscal policy in real time," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 24, pages 753-804, October.
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Cited by:
  1. Georgia Kaplanoglou & Vassilis T. Rapanos, 2013. "Fiscal Deficits and the Role of Fiscal Governance: The case of Greece," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, Queensland University of Technology (QUT), School of Economics and Finance, vol. 43(1), pages 5-30, March.
  2. Frankel, Jeffrey A., 2011. "A Solution to Overoptimistic Forecasts and Fiscal Procyclicality: The Structural Budget Institutions Pioneered by Chile," Scholarly Articles, Harvard Kennedy School of Government 4723209, Harvard Kennedy School of Government.
  3. Merola, Rossana & Pérez, Javier J., 2013. "Fiscal forecast errors: Governments versus independent agencies?," European Journal of Political Economy, Elsevier, Elsevier, vol. 32(C), pages 285-299.
  4. Javier J. Perez & Rossana Merola, 2012. "Fiscal forecast errors: governments vs independent agencies?," EcoMod2012 4694, EcoMod.
  5. Frankel, Jeffrey A., 2011. "A Lesson from the South for Fiscal Policy in the US and Other Advanced Countries," Scholarly Articles, Harvard Kennedy School of Government 8705907, Harvard Kennedy School of Government.
  6. Jeffrey A. Frankel, 2011. "A Solution to Fiscal Procyclicality: The Structural Budget Institutions Pioneered by Chile," NBER Working Papers 16945, National Bureau of Economic Research, Inc.
  7. Frankel, Jeffrey A., 2011. "Over-optimism in Forecasts by Official Budget Agencies and its Implications," Scholarly Articles, Harvard Kennedy School of Government 8705906, Harvard Kennedy School of Government.
  8. António Afonso & Jorge Silva, 2012. "The Fiscal Forecasting Track Record of the European Commission and Portugal," Working Papers Department of Economics, ISEG - School of Economics and Management, Department of Economics, University of Lisbon 2012/37, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.

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