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The Reliability of EMU FIscal Indicators: Risks and Safeguards

Author

Listed:
  • Fabrizio Balassone

    (Banca d'Italia - Economic Research Department)

  • Daniele Franco

    (Banca d'Italia- Economic Research Department)

  • Stefania Zotteri

    (Banca d'Italia - Economic Research Department)

Abstract

The reliability of EMU�s fiscal indicators has been questioned by recent episodes of large upward deficit revisions. This paper discusses the causes of such revisions in order to identify ways to improve monitoring. The computation of EMU�s deficit indicator involves the assessment of accrued revenue and expenditure and the identification of transactions in financial assets. Both can open margins for opportunistic accounting. However, crosschecks between deficit and changes in gross nominal debt (the other fiscal indicator used in EMU) can reduce the scope for window dressing. Simple comparison of deficit and changes in debt can readily spotlight large inconsistencies in fiscal data. Nevertheless, consistency checks must go deeper than simple comparison, since different items in the reconciliation account between deficit and change in debt can offset each other. Econometric evidence suggests that such offset may indeed have been used to reduce the visibility of deficit-specific window dressing. Attention to the quality of statistics has increased in recent years, also in the context of the reform of the Stability and Growth Pact. In this context, the paper argues that detailed analysis of the reconciliation account between deficit and change in debt is crucial to the effectiveness of monitoring.

Suggested Citation

  • Fabrizio Balassone & Daniele Franco & Stefania Zotteri, 2007. "The Reliability of EMU FIscal Indicators: Risks and Safeguards," Temi di discussione (Economic working papers) 633, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_633_07
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    References listed on IDEAS

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    3. Roberto Golinelli & Sandro Momigliano, 2006. "Real-time determinants of fiscal policies in the euro area: Fiscal rules, cyclical conditions and elections," Temi di discussione (Economic working papers) 609, Bank of Italy, Economic Research and International Relations Area.
    4. von Hagen, Jurgen & Harden, Ian J., 1995. "Budget processes and commitment to fiscal discipline," European Economic Review, Elsevier, vol. 39(3-4), pages 771-779, April.
    5. Fabrizio Balassone & Daniele Franco & Stefania Zotteri, 2006. "EMU fiscal indicators: a misleading compass?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 33(2), pages 63-87, June.
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    Cited by:

    1. Pavel Dvořák, 2010. "Mimorozpočtové důvody růstu veřejného zadlužení [Off-Budgetary Reasons of the Growing Public Indebtedness]," Politická ekonomie, Prague University of Economics and Business, vol. 2010(4), pages 522-541.
    2. Jacopo Cimadomo, 2016. "Real-Time Data And Fiscal Policy Analysis: A Survey Of The Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 30(2), pages 302-326, April.
    3. Luís Gordo Mora & João Nogueira Martins, 2007. "How reliable are the statistics for the Stability and Growth Pact?," European Economy - Economic Papers 2008 - 2015 273, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    4. Teresa Leal & Javier J. Pérez & Mika Tujula & Jean-Pierre Vidal, 2008. "Fiscal Forecasting: Lessons from the Literature and Challenges," Fiscal Studies, Institute for Fiscal Studies, vol. 29(3), pages 347-386, September.
    5. Maxime Clémenceau & Nils Soguel, 2017. "Does personal background influence a finance minister to cook the books? An investigation of creative accounting in Swiss cantons," Applied Economics, Taylor & Francis Journals, vol. 49(10), pages 941-953, February.
    6. Laurent Paul & Christope Schalck, 2007. "Transfers to the government of public corporation pension liabilities: The French case study," MNB Conference Volume, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 1(1), pages 72-80, December.
    7. Mr. Duncan P Last & Ms. Carla Sateriale & Mr. Sami Yläoutinen & Mr. Brian Olden, 2012. "Fiscal Consolidation in Southeastern European Countries: The Role of Budget Institutions," IMF Working Papers 2012/113, International Monetary Fund.
    8. 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.
    9. Maxime Clémenceau & Nils Soguel, 2018. "How does depreciations management affect subsequent fiscal performance? The case of the Swiss cantons," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 154(1), pages 1-15, December.
    10. Mr. Ian Lienert, 2010. "Should Advanced Countries Adopt a Fiscal Responsibility Law?," IMF Working Papers 2010/254, International Monetary Fund.
    11. Francisco Castro & Javier J. P√Ârez & Marta Rodr√Çguez-Vives, 2013. "Fiscal Data Revisions in Europe," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(6), pages 1187-1209, September.
    12. Sandro Momigliano & Pietro Rizza, 2007. "Temporary measures in Italy: buying or losing time?," MNB Conference Volume, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 1(1), pages 61-71, December.

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    More about this item

    Keywords

    EMU; fiscal rules; fiscal indicators; stock-flow adjustment;
    All these keywords.

    JEL classification:

    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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