Planning to Cheat: EU Fiscal Policy in Real Time
Roel M. W. J. Beetsma
University of Amsterdam - Research Institute in Economics & Econometrics (RESAM); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Tinbergen Institute - Tinbergen Institute Amsterdam (TIA); Netspar
University of Amsterdam - Faculty of Economics & Econometrics (FEE); Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)
De Nederlandsche Bank; VU University Amsterdam
Economic Policy, Vol. 24, Issue 60, pp. 753-804, October 2009
Using real-time data from Europe’s Stability and Convergence Programs, we explore how fiscal plans and their implementation in the EU are determined. We find that (1) implemented budgetary adjustment falls systematically short of planned adjustment and this shortfall increases with the projection horizon, (2) variability in the eventual fiscal outcomes is dominated by the implementation errors, (3) there is a limited role for ‘traditional’ political variables, (4) stock-flow adjustments are more important when plans are more ambitious, and (5), most importantly, both the ambition in fiscal plans and their implementation benefit from stronger national fiscal institutions. We emphasize also the importance of credible plans for the eventual fiscal outcomes.
Number of Pages in PDF File: 52
Date posted: October 8, 2009
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