Planning to cheat: EU fiscal policy in real time

Authors: Beetsma, Roel; Giuliodori, Massimo; Wierts, Peter

Source: Economic Policy, Volume 24, Number 60, October 2009 , pp. 753-804(52)

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Abstract:

Summary

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.

--- Roel Beetsma, Massimo Giuliodori and Peter Wierts

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1468-0327.2009.00230.x

Publication date: 2009-10-01