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The Political Economy of EDP Fiscal Forecasts: An Empirical Assessment

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Author Info
Álvaro Pina
Nuno Venes

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Abstract

This paper analyses the track record of fiscal forecasts reported by 15 European countries in the context of the Excessive Deficit Procedure. For the budget balance, gross fixed capital formation (GFCF) and interest payments, we study the statistical properties of forecast errors and their politico-institutional determinants. While errors in interest and GFCF expenditure present few systematic patterns, budget balance errors are responsive to fiscal institutions and to opportunistic motivations, especially from 1999 onwards: upcoming elections induce over-optimism, whereas commitment or mixed forms of fiscal governance and numerical expenditure rules (but not deficit and debt rules) are associated to greater prudence.

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Paper provided by Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon. in its series Working Papers with number 2007/23.

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Date of creation: 2007
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Handle: RePEc:ise:isegwp:wp232007

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Postal: Department of Economics, School of Economics and Management (ISEG), Technical University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL
Web page: http://www.iseg.utl.pt/departamentos/economia/

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Related research
Keywords: fiscal forecasting Stability and Growth Pact Excessive Deficit Procedure fiscal rules

Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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  1. 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. [Downloadable!] (restricted)
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  2. Hallerberg, Mark & Strauch, Rolf & von Hagen, Jurgen, 2007. "The design of fiscal rules and forms of governance in European Union countries," European Journal of Political Economy, Elsevier, vol. 23(2), pages 338-359, June. [Downloadable!] (restricted)
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  3. Lars Jonung & Martin Larch, 2006. "Improving fiscal policy in the EU: the case for independent forecasts," Economic Policy, CEPR, CES, MSH, vol. 21(47), pages 491-534, 07. [Downloadable!] (restricted)
  4. Öller, Lars-Erik & Barot, Bharat, 2000. "The Accuracy of European Growth and Inflation Forecasts," Working Paper 72, National Institute of Economic Research. [Downloadable!]
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  5. Vincent Koen & Paul van den Noord, 2005. "Fiscal Gimmickry in Europe: One-Off Measures and Creative Accounting," OECD Economics Department Working Papers 417, OECD Economics Department. [Downloadable!]
  6. Rolf Strauch & Mark Hallerberg & Jürgen von Hagen, 2004. "Budgetary forecasts in Europe - the track record of stability and convergence programmes," Working Paper Series 307, European Central Bank. [Downloadable!]
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  7. Anthony Annett, 2006. "Enforcement and the Stability and Growth Pact: How Fiscal Policy Did and Did Not Change Under Europe's Fiscal Framework," IMF Working Papers 06/116, International Monetary Fund. [Downloadable!]
  8. Tilman Brück & Andreas Stephan, 2006. "Do Eurozone Countries Cheat with their Budget Deficit Forecasts?," Kyklos, Blackwell Publishing, vol. 59(1), pages 3-15, 02. [Downloadable!] (restricted)
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