Public Financial Management and Budget Credibility

Abstract

Abstract Budget credibility of governments in accurately forecasting macro-fiscal variables is crucial for effective public finance management. Fiscal marksmanship analysis captures the extent of errors in budgetary forecasting. The fiscal rules can determine fiscal marksmanship. This chapter applies Theil’s technique to analyse fiscal forecasting errors for Indian states. There is a heterogeneity in the magnitude of errors across Indian states. The forecast errors in revenue receipts have been greater than those in 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 in all the states. Further, 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.