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Do Eurozone Countries Cheat with their Budget Deficit Forecasts?

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  • Tilman Brück
  • Andreas Stephan

Abstract

The authors assess the political economy determinants of budget deficit forecast errors. Their econometric analysis indicates that Eurozone governments have manipulated deficit forecasts before elections since the introduction of the Stability and Growth Pact. The left‐right position and the institutional design of governments also affect the quality of deficit forecasts.

Suggested Citation

  • Tilman Brück & Andreas Stephan, 2006. "Do Eurozone Countries Cheat with their Budget Deficit Forecasts?," Kyklos, Wiley Blackwell, vol. 59(1), pages 3-15, February.
  • Handle: RePEc:bla:kyklos:v:59:y:2006:i:1:p:3-15
    DOI: 10.1111/j.1467-6435.2006.00317.x
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    References listed on IDEAS

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    1. Marco Buti & Paul van den Noord, 2004. "Fiscal policy in EMU: Rules, discretion and political incentives," European Economy - Economic Papers 2008 - 2015 206, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. von Hagen, Jürgen, 2003. "Fiscal discipline and growth in Euroland: Experiences with the stability and growth pact," ZEI Working Papers B 06-2003, University of Bonn, ZEI - Center for European Integration Studies.
    3. Andrikopoulos, Andreas & Loizides, Ioannis & Prodromidis, Kyprianos, 2004. "Fiscal policy and political business cycles in the EU," European Journal of Political Economy, Elsevier, vol. 20(1), pages 125-152, March.
    4. Alberto Alesina & Nouriel Roubini & Gerald D. Cohen, 1997. "Political Cycles and the Macroeconomy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510944.
    5. Beetsma, Roel & Jensen, Henrik, 2003. "Contingent deficit sanctions and moral hazard with a stability pact," Journal of International Economics, Elsevier, vol. 61(1), pages 187-208, October.
    6. Strauch, Rolf & Hallerberg, Mark & von Hagen, Jürgen, 2004. "Budgetary forecasts in Europe - the track record of stability and convergence programmes," Working Paper Series 307, European Central Bank.
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    More about this item

    JEL classification:

    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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