Is the Road to Hell Paved with Good Intentions? An Empirical Analysis of Budgetary Follow-up in the EU

Roel Beetsma, Matthias Busse, Lorenzo Germinetti, Massimo Giuliodori and Martin Larch

No 17154, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the one-year-ahead budgetary projections from the Stability and Convergence Programmes of EU Member States since the start of the Economic and Monetary Union (EMU) until the start of the coronavirus crisis. We consider first budget-balance errors, which we then split into expenditure and revenue errors. Next, we split the latter two into “base†, “growth†and “denominator†effects. The most important explanatory variable is the GDP growth error: more optimism in GDP growth projections produces more optimistic budgetary projections. This effect goes beyond a mechanical denominator effect on spending and revenues as shares of GDP; it also works through the numerator of these ratios. Our findings may call for delegating the construction of output projections to adequately equipped national independent fiscal institutions. Finally, we explore how independent fiscal institutions shape projection errors. Those with high media impact producing or assessing the macroeconomic forecast appear to lead to actual budgetary improvement relative to projections.

Keywords: Budgetary follow-up; Projection; First-release error; Budget balance; Revenues; Expenditures (search for similar items in EconPapers)
JEL-codes: E62 G11 G12 G18 (search for similar items in EconPapers)
Date: 2022-03
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP17154 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Is the road to hell paved with good intentions? An empirical analysis of budgetary follow-up in the EU (2023)
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:cpr:ceprdp:17154

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP17154

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().