Empirical evidence on fiscal forecasting in Eurozone countries

Abstract

Purpose – The purpose of this paper is to contribute to the literature on the determinant factors of government budget balance forecast errors for Eurozone countries based on four different database sources from 1998 to 2011. Design/methodology/approach – Besides the analysis on quality and efficiency of government budget balance projections, panel data analysis is made from different methods taking into account economic, political, institutional and governance factors, and lagged forecast errors for estimations of budget balance forecast errors. Findings – The results show that even with the concern and pressure due to the fiscal crisis in the Eurozone, the bias in fiscal forecasts remains. Originality/value – One contribution of this paper, in comparison to other studies, is the use of longer time periods for the analysis of forecast errors as well as the employment of different data sources for detecting systematic patterns of errors, and the use of various estimation methods for the fiscal forecast error determinants, which gives insights into the reliability and robustness of results obtained in earlier studies. In particular, the introduction of variables such as fiscal council and fiscal rules allows one to check whether institutional behavior may change the effect from debt on fiscal forecast errors.