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

Lekha Chakraborty, Pinaki Chakraborty and Ruzel Shrestha

Economics Working Paper Archive from Levy Economics Institute

Abstract: Budget credibility, or the ability of governments to accurately forecast macro-fiscal variables, is crucial for effective public finance management. Fiscal marksmanship analysis captures the extent of errors in the budgetary forecasting. The fiscal rules can determine fiscal marksmanship, as effective fiscal consolidation procedures affect the fiscal behavior of the states in conducting the budgetary forecasts. Against this backdrop, applying Theil's technique, we analyze the fiscal forecasting errors for 28 states (except Telangana) in India for the period 2011-16. 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 more significantly pronounced in the grants component. Within expenditure budgets, the errors in capital spending are found to be greater than revenue spending in all the states. Partitioning the sources of errors, we identified that the errors were more broadly random than due to systematic bias, except for a few crucial macro-fiscal variables where improving the forecasting techniques can provide better estimates.

Keywords: Forecast Errors; Fiscal Policies; Fiscal Forecasting; Political Economy; Fiscal Marksmanship (search for similar items in EconPapers)
JEL-codes: C53 E62 H6 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-for and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.levyinstitute.org/pubs/wp_964.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.levyinstitute.org/pubs/wp_964.pdf [301 Moved Permanently]--> https://levyweb.bard.edu/pubs/wp_964.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lev:wrkpap:wp_964

Access Statistics for this paper

More papers in Economics Working Paper Archive from Levy Economics Institute
Bibliographic data for series maintained by Elizabeth Dunn ( this e-mail address is bad, please contact ).