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The political economy of EDP fiscal forecasts: An empirical assessment

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  • Pina, Álvaro M.
  • Venes, Nuno M.

Abstract

We analyse the budget balance forecasts prepared by 15 European countries in their Excessive Deficit Procedure reportings, studying the statistical properties of forecast errors and their politico-institutional determinants. Forecast errors are responsive to growth surprises, fiscal institutions and opportunistic motivations: upcoming elections induce over-optimism, most apparent when the opposition wins, whereas commitment or mixed forms of fiscal governance and numerical expenditure rules (unlike deficit and debt rules) are associated to greater prudence. The main findings hold when using forecasts from national draft budgets. Taking subsamples reveals that opportunistic and institutional effects are only significant under the Stability and Growth Pact.

Suggested Citation

  • Pina, Álvaro M. & Venes, Nuno M., 2011. "The political economy of EDP fiscal forecasts: An empirical assessment," European Journal of Political Economy, Elsevier, vol. 27(3), pages 534-546, September.
    • Handle: RePEc:eee:poleco:v:27:y:2011:i:3:p:534-546
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    More about this item

    Keywords

    Fiscal forecasting Stability and Growth Pact Excessive Deficit Procedure Fiscal rules;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • 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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