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Budget Credibility of Subnational Governments: Analyzing the Fiscal Forecasting Errors of 28 States in India

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  • Chakraborty, Lekha

    (National Institute of Public Finance and Policy)

  • Chakraborty, Pinaki

    (National Institute of Public Finance and Policy)

  • Shrestha, Ruzel

    (National Institute of Public Finance and Policy)

Abstract

Budget credibility, the ability of governments to accurately forecast the macro-fiscal variables, is crucial for effective Public Financial Management (PFM). Fiscal marksmanship analysis captures the extent of errors in the budgetary forecasting. The fiscal rules can determine fiscal marksmanship, as effective fiscal consolidation procedure affects the fiscal behaviour of the states in conducting the budgetary forecasts. Against this backdrop, applying Theil's technique, we analyse the fiscal forecasting errors for 28 States (except Telangana) in India for the period 2011-12 to 2015-16. There is a heterogeneity in the magnitude of errors across subnational governments in India. The forecast errors in revenue receipts have been greater than revenue expenditure. Within revenue receipts, the errors are pronounced more significantly in grants component. Within expenditure budgets, the errors in capital spending are found greater than revenue spending in all the States. Partitioning the sources of errors, we identified that the errors were more broadly random than systematic bias, except for a few crucial macro-fiscal variables where improving the forecasting techniques can provide better estimates.

Suggested Citation

  • Chakraborty, Lekha & Chakraborty, Pinaki & Shrestha, Ruzel, 2019. "Budget Credibility of Subnational Governments: Analyzing the Fiscal Forecasting Errors of 28 States in India," Working Papers 19/280, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:19/280
    Note: Working Paper 280, 2019
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    More about this item

    Keywords

    forecast errors ; fiscal policies ; fiscal forecasting ; political economy ; fiscal marksmanship;
    All these keywords.

    JEL classification:

    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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