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Fiscal forecast errors: governments vs independent agencies?

Rossana Merola and Javier Pérez ()

No 1233, Working Papers from Banco de España, Working Papers Homepage

Abstract: The fact that the literature tends to find optimistic biases in national fiscal projections has led to a growing recognition in the academic and policy arenas of the need for independent forecasts in the fiscal domain, prepared by independent agencies, such as the European Commission in the case of Europe. Against this background the aim of this paper is to test: (i) whether the forecasting performance of governments is indeed worse than that of international organizations, and (ii) whether fiscal projections prepared by international organizations are free from political economy distortions. The answer to these both questions is no: our results, based on real-time data for 15 European countries over the period 1999-2007, point to the rejection of the two hypotheses under scrutiny. We motivate the empirical analysis on the basis of a model in which an independent agency tries to minimize the distance to the government forecast. Starting from the assumption that the government’s information set includes private information not available to outside forecasters, we show how such a framework can help in understanding the observed empirical evidence

Keywords: forecast errors; fi scal policies; fi scal forecasting; political economy (search for similar items in EconPapers)
JEL-codes: H6 E62 C53 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-for
Date: 2012-09
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http://www.bde.es/f/webbde/SES/Secciones/Publicaci ... /12/Fich/dt1233e.pdf First version, September 2011 (application/pdf)

Related works:
Working Paper: Fiscal Forecast Errors: Governments Versus Independent Agencies? (2014) Downloads
Journal Article: Fiscal forecast errors: Governments versus independent agencies? (2013) Downloads
Working Paper: Fiscal forecast errors: governments vs independent agencies? (2012) Downloads
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