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The Fiscal Forecasting Track Record of the European Commission and Portugal

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  • António Afonso
  • Jorge Silva

Abstract

This study aims at explaining the deviation between the budget balance ratio forecasts and the outcomes in the Portuguese official forecasts and in the European Commission (EC) vintage forecasts. Therefore, we used data from the EC for the period 1969-2011 and also the Portuguese official forecasts for 1977-2011. We explain the deviation of the budget balanceto- GDP through econometric estimations and present statistical decomposition about budget balance, revenue and spending-to-GDP deviations. The statistical significance of real GDP and inflation deviations reveals the effect of automatic stabilizers and the imperfect tax indexation system. The European panel reveals statistical significance (no significance) of investment (unemployment) deviations in the budget-to-GDP ratio. Countries with better fiscal rules seem to present favourable deviations (in the absence of fixed effects). In Portugal, there is evidence of unfavourable errors about the budget balance in nominal currency in most years, which has been offset (totally or partially) by a favourable nominal GDP effect deviation. JEL Classification: C23, E44, H68.

Suggested Citation

  • António Afonso & Jorge Silva, 2012. "The Fiscal Forecasting Track Record of the European Commission and Portugal," Working Papers Department of Economics 2012/37, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
  • Handle: RePEc:ise:isegwp:wp372012
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    File URL: http://pascal.iseg.utl.pt/~depeco/wp/wp372012.pdf
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    References listed on IDEAS

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    1. Merola, Rossana & Pérez, Javier J., 2013. "Fiscal forecast errors: Governments versus independent agencies?," European Journal of Political Economy, Elsevier, vol. 32(C), pages 285-299.
    2. 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.
    3. 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.
    4. Antonio Afonso, 2010. "Long-term government bond yields and economic forecasts: evidence for the EU," Applied Economics Letters, Taylor & Francis Journals, vol. 17(15), pages 1437-1441.
    5. Tilman Brück & Andreas Stephan, 2006. "Do Eurozone Countries Cheat with their Budget Deficit Forecasts?," Kyklos, Wiley Blackwell, vol. 59(1), pages 3-15, February.
    6. Jürgen Hagen, 2010. "Sticking to fiscal plans: the role of institutions," Public Choice, Springer, vol. 144(3), pages 487-503, September.
    7. Carlos Fonseca Marinheiro, 2010. "Fiscal sustainability and the accuracy of macroeconomic forecasts: do supranational forecasts rather than government forecasts make a difference?," GEMF Working Papers 2010-07, GEMF, Faculty of Economics, University of Coimbra.
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    Cited by:

    1. António Afonso & Rui Carvalho, 2014. "Revenue Forecast Errors in the European Union," Working Papers Department of Economics 2014/02, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    2. Merola, Rossana & Pérez, Javier J., 2013. "Fiscal forecast errors: Governments versus independent agencies?," European Journal of Political Economy, Elsevier, vol. 32(C), pages 285-299.
    3. Jalles, João Tovar & Karibzhanov, Iskander & Loungani, Prakash, 2015. "Cross-country evidence on the quality of private sector fiscal forecasts," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 186-201.
    4. António Afonso, 2013. "Anatomy of a fiscal débacle: the case of Portugal," Working Papers Department of Economics 2013/01, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.

    More about this item

    Keywords

    macro forecasts; fiscal forecasts; EU; Portugal.;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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