The Political Economy of EDP Fiscal Forecasts: An Empirical Assessment

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The Political Economy of EDP Fiscal Forecasts: An Empirical Assessment

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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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Publisher Info
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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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

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-10-20 (All new papers)
NEP-FOR-2007-10-20 (Forecasting)
NEP-MAC-2007-10-20 (Macroeconomics)
NEP-PBE-2007-10-20 (Public Economics)
NEP-POL-2007-10-20 (Positive Political Economics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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)
Other versions:
- Marco Buti & João Nogueira Martins & Alessandro Turrini, 2007. "From Deficits to Debt and Back: Political Incentives under Numerical Fiscal Rules," CESifo Economic Studies, Oxford University Press, vol. 53(1), pages 115-152, March. [Downloadable!] (restricted)
Michael Artis & Massimiliano Marcellino, 2001. "Fiscal forecasting: The track record of the IMF, OECD and EC," Econometrics Journal, Royal Economic Society, vol. 4(1), pages S20-S36.
Other versions:
- Artis, M. & Marcellino, M., 1999. "Fiscal Forecasting: the Track Record of the IMF, OECD and EC," Economics Working Papers eco99/22, European University Institute.
- Artis, Michael J & Marcellino, Massimiliano, 1999. "Fiscal Forecasting: the Track Record of the IMF, OECD, and EC," CEPR Discussion Papers 2206, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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)
Other versions:
- Mark Hallerberg & Rolf Strauch & Jürgen von Hagen, 2004. "The design of fiscal rules and forms of governance in European Union countries," Working Paper Series 419, European Central Bank. [Downloadable!]
- Mark Hallerberg & Rolf Strauch & Jürgen von Hagen, 2006. "The design of fiscal rules and forms of governance in European Union countries," Discussion Papers 150, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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)
Öller, Lars-Erik & Barot, Bharat, 2000. "The Accuracy of European Growth and Inflation Forecasts," Working Paper 72, National Institute of Economic Research. [Downloadable!]
Other versions:
- Oller, Lars-Erik & Barot, Bharat, 2000. "The accuracy of European growth and inflation forecasts," International Journal of Forecasting, Elsevier, vol. 16(3), pages 293-315. [Downloadable!] (restricted)
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!]
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!]
Other versions:
- Rolf Strauch & Mark Hallerberg & Jürgen von Hagen, 2004. "Budgetary Forecasts in Europe – The Track Record of Stability and Convergence Programmes," Economic Working Papers at Centro de Estudios Andaluces E2004/42, Centro de Estudios Andaluces. [Downloadable!]
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!]
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)
Other versions:
- Tilman Brück & Andreas Stephan, 2005. "Do Eurozone Countries Cheat with Their Budget Deficit Forecasts?," Discussion Papers of DIW Berlin 508, DIW Berlin, German Institute for Economic Research. [Downloadable!]

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Bernoth, Kerstin & Hughes Hallett, Andrew & Lewis, John, 2008. "Did Fiscal Policy Makers Know What They Were Doing? Reassessing Fiscal Policy with Real Time Data," CEPR Discussion Papers 6758, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- Kerstin Bernoth & Andrew Hughes Hallet & John Lewis, 2008. "Did fiscal policy makers know what they were doing? Reassessing fiscal policy with real-time data," DNB Working Papers 169, Netherlands Central Bank, Research Department. [Downloadable!]
Beetsma, Roel & Giuliodori, Massimo, 2008. "Fiscal Adjustment to Cyclical Developments in the OECD: An Empirical Analysis Based on Real-Time Data," CEPR Discussion Papers 6692, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Beetsma, Roel & Giuliodori, Massimo & Wierts, Peter, 2009. "Budgeting versus implementing fiscal policy in the EU," CEPR Discussion Papers 7285, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)

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