The Reliability of EMU Fiscal Indicators: Risks and Safeguards

28 Pages Posted: 7 Aug 2007

Date Written: June 2007

Abstract

The reliability of EMU's fiscal indicators has been questioned by recent episodes of large upward deficit revisions. This paper discusses the causes of such revisions in order to identify ways to improve monitoring. The computation of EMU's deficit indicator involves the assessment of accrued revenue and expenditure and the identification of transactions in financial assets. Both can open margins for opportunistic accounting. However, crosschecks between deficit and changes in gross nominal debt (the other fiscal indicator used in EMU) can reduce the scope for window dressing. Simple comparison of deficit and changes in debt can readily spotlight large inconsistencies in fiscal data. Nevertheless, consistency checks must go deeper than simple comparison, since different items in the reconciliation account between deficit and change in debt can offset each other. Econometric evidence suggests that such offset may indeed have been used to reduce the visibility of deficit-specific window dressing. Attention to the quality of statistics has increased in recent years, also in the context of the reform of the Stability and Growth Pact. In this context, the paper argues that detailed analysis of the reconciliation account between deficit and change in debt is crucial to the effectiveness of monitoring.

Keywords: EMU, fiscal rules, fiscal indicators, stock-flow adjustment

JEL Classification: H61, H62, H87

Suggested Citation

Franco, Daniele and Balassone, Fabrizio and Zotteri, Stefania, The Reliability of EMU Fiscal Indicators: Risks and Safeguards (June 2007). Bank of Italy Temi di Discussione (Working Paper) No. 633. Available at SSRN: https://ssrn.com/abstract=1005295 or http://dx.doi.org/10.2139/ssrn.1005295

Daniele Franco (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy
+39 06 4792 2793 (Phone)
+39 06 4792 2324 (Fax)

Fabrizio Balassone

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Stefania Zotteri

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
88
Abstract Views
690
rank
301,939
PlumX Metrics