Fiscal Policy in Real Time

In this paper, I estimate the ex ante or intentional cyclical stance of fiscal policy in OECD countries. I use the fiscal plans reported at the time of budgeting, together with other information available to fiscal policy‐makers in real time. Indeed, fiscal plans might be significantly different from ex post outcomes because governments do not have complete control over their implementation, which is influenced by several exogenous factors. When fiscal‐policy rules are estimated using real‐time data, I show in this paper that OECD countries have often planned a counter‐cyclical fiscal stance, especially during economic expansions. This contrasts with conventional findings based on actual data, which tend to point towards a‐cyclicality or pro‐cyclicality. Forecast errors for the government structural balance and the output gap play a central role in explaining the differences between estimates based on ex ante and ex post data.