The Reliability of EMU FIscal Indicators: Risks and Safeguards

Fabrizio Balassone, Daniele Franco and Stefania Zotteri ()
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Stefania Zotteri: Banca d'Italia - Economic Research Department

No 633, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

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.

Keywords: EMU; fiscal rules; fiscal indicators; stock-flow adjustment (search for similar items in EconPapers)
JEL-codes: H61 H62 H87 (search for similar items in EconPapers)
Date: 2007-06
New Economics Papers: this item is included in nep-eec
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Citations: View citations in EconPapers (20)

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