Does oversight pay off?Independent fiscal institutions and forecast accuracy

This paper examines the causal effect of Independent Fiscal Institutions (IFIs) on the accuracy of government macroeconomic and fiscal forecasts. Using a novel dataset of real-time budget projections for 55 European and Latin American countries over 1998–2019, we exploit the staggered introduction of IFIs to identify their impact on forecast performance. We find that IFI implementation leads to statistically and economically meaningful reductions in forecast errors for GDP growth, total government revenue, and total government expenditure. Improvements in GDP growth forecasts emerge within two years of implementation, whereas gains in fiscal forecast accuracy materialise more gradually, after four to five years. This dynamic pattern is consistent with reputational and accountability mechanisms, whereby sustained independent scrutiny reshapes governments’ forecasting incentives over time. The results are robust across alternative identification strategies and forecast accuracy measures. Overall, the findings underscore the role of IFIs as institutions that strengthen fiscal credibility by reshaping forecasting incentives over time, thereby complementing fiscal rules and supporting more sustainable fiscal policymaking.