Bias in Official Fiscal Forecasts: Can Private Forecasts Help?
23 Pages Posted: 23 May 2016
Date Written: May 20, 2016
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: Suggested Citation