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Planning or propaganda? An evaluation of Germany's medium-term budgetary planning

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  • Heinemann, Friedrich

Abstract

In Germany, the medium-term financial planning ("Mifrifi") was introduced at the end of the sixties. This study scrutinizes the experience of the German Bund with more than thirty years of financial planning. In the first step, the paper explores the potential normative and political-economic driving forces of fiscal projections. The following empirical part evaluates Mifrifi?s forecasting quality with regard to expenditures, taxes and deficits. A model is tested relating the forecasted budgetary trends to economic, institutional and political-economic factors. The financial planning turns out to be ineffective in making budgetary policy more predictable. The projections are heavily biased towards over-optimism. The Maastricht Treaty appears to have transformed Germany?s budgetary planning not into the direction of more credible and binding projections, but rather towards the production of less realistic and unduly favourable outlooks. The policy conclusion hints towards an independent institution taking over the responsibility for fiscal forecasts. Such an institution would not face the government?s inherent problem being unable to promise in a credible way the production of unbiased forecasts. --

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Bibliographic Info

Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 05-12.

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Date of creation: 2005
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Handle: RePEc:zbw:zewdip:2902

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Keywords: Mifrifi; budgetary planning; Stability and Growth Pact;

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References

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  1. Francis X. Diebold & Jose A. Lopez, 1995. "Forecast evaluation and combination," Research Paper 9525, Federal Reserve Bank of New York.
  2. 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.
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Cited by:
  1. Simon Luechinger & Christoph Schaltegger, 2013. "Fiscal rules, budget deficits and budget projections," International Tax and Public Finance, Springer, Springer, vol. 20(5), pages 785-807, October.
  2. Roy Batchelor, 2007. "Forecaster Behaviour and Bias in Macroeconomic Forecasts," Ifo Working Paper Series Ifo Working Paper No. 39, Ifo Institute for Economic Research at the University of Munich.
  3. 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, C.E.P.R. Discussion Papers 8413, C.E.P.R. Discussion Papers.
  4. Roel Beetsma & Benjamin Bluhm & Massimo Giuliodori & Peter Wierts, 2011. "From First-Release to Ex-Post Fiscal Data: Exploring the Sources of Revision Errors in the EU," Tinbergen Institute Discussion Papers 11-080/2, Tinbergen Institute.
  5. Kappler, Marcus, 2007. "Projecting the Medium-Term: Outcomes and Errors for GDP Growth," ZEW Discussion Papers 07-068, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  6. Batchelor, Roy, 2007. "Bias in macroeconomic forecasts," International Journal of Forecasting, Elsevier, Elsevier, vol. 23(2), pages 189-203.
  7. J. Ayuso-i-Casals & S. Deroose & E. Flores & L. Moulin, 2007. "The role of fiscal rules and institutions in shaping budgetary outcomes," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 275, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.

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