Economics at your fingertips  

Do European fiscal rules induce a bias in fiscal forecasts? Evidence from the Stability and Growth Pact

Niels Gilbert and Jasper De Jong

Public Choice, 2017, vol. 170, issue 1, No 1, 32 pages

Abstract: Abstract Enforcement of European fiscal rules, to a large extent, hinges on fiscal forecasts prepared by the European Commission (EC). The reliability of these forecasts has received little attention in the literature, despite the fact that (i) the forecasts have potentially far-reaching consequences for national governments, especially in the euro area while (ii) the EC depends on information supplied by national officials in preparing its forecasts. We hypothesize that the EC’s forecasts are biased upwards when national governments expect European fiscal rules to bind. Reconstructing this expectation using real-time information, we show that for euro area countries the EC’s fiscal forecasts are indeed biased upwards when the budget deficit threatens to exceed the critical value of 3 % of GDP. For non-euro area countries, which do not face the risk of fines, this bias cannot be established. Our results are robust to various ways of controlling for crisis-induced budgetary problems and the exclusion of various country groups. We offer suggestive evidence that the presence of independent fiscal councils at the national level helps to attenuate the bias induced by the 3 % threshold.

Keywords: Forecast errors; Stability and Growth Pact; Fiscal policy; Political economy (search for similar items in EconPapers)
JEL-codes: C53 H3 H68 E62 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link) Abstract (text/html)
Access to full text is restricted to subscribers.

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:

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/11127/PS2

DOI: 10.1007/s11127-016-0372-1

Access Statistics for this article

Public Choice is currently edited by WIlliam F. Shughart II

More articles in Public Choice from Springer
Bibliographic data for series maintained by Sonal Shukla ().

Page updated 2020-07-08
Handle: RePEc:kap:pubcho:v:170:y:2017:i:1:d:10.1007_s11127-016-0372-1