Bias in Official Fiscal Forecasts: Can Private Forecasts Help?

23 Pages Posted: 23 May 2016

See all articles by Jeffrey A. Frankel

Jeffrey A. Frankel

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Jesse Schreger

Princeton University - Department of Economics; Harvard University - Business School (HBS)

Multiple version iconThere are 2 versions of this paper

Date Written: May 20, 2016

Abstract

Government forecasts of GDP growth and budget balances are generally more over-optimistic than private sector forecasts. When official forecasts are especially optimistic relative to private forecasts ex ante, they are more likely also to be over-optimistic relative to realizations ex post. For example, euro area governments during the period 1999-2007 assiduously and inaccurately avoided forecasting deficit levels that would exceed the 3% Stability and Growth Pact threshold; meanwhile private sector forecasters were not subject to this crude bias. As a result, the budget-making process could probably be improved by using private-sector forecasts.

Keywords: budget, deficit, euro, fiscal, government, optimism, optimistic, forecast, official, SGP

JEL Classification: E62

Suggested Citation

Frankel, Jeffrey A. and Schreger, Jesse, Bias in Official Fiscal Forecasts: Can Private Forecasts Help? (May 20, 2016). HKS Working Paper No. 16-021, Available at SSRN: https://ssrn.com/abstract=2782446 or http://dx.doi.org/10.2139/ssrn.2782446

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Jesse Schreger

Princeton University - Department of Economics ( email )

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