Title: Fiscal sustainability and the accuracy of macroeconomic forecasts: Do supranational forecasts rather than government forecasts make a difference?

Authors: Carlos Fonseca Marinheiro

Addresses: GEMF, Faculty of Economics, University of Coimbra, Av. Dias da Silva, 165, Coimbra P-3004-512, Portugal

Abstract: Credible fiscal plans that aim at restoring fiscal sustainability will be essential to counter the present increase in debt levels all across Europe. The macroeconomic scenario of such plans will be crucial. This paper assesses whether there is any advantage in delegating (part of) such power to supranational forecasts. The evidence on the relative performance of the European Commission|s (EC) growth forecast is rather mixed, with considerable variation at the country level. Some national government forecasts (France, Italy and Portugal) perform worse in terms of descriptive statistics than the EC forecast for all forecast horizons. For the year ahead the EC growth forecast is better than the official forecasts for almost three quarters of the EU-15 countries. All in all, since the EC forecast appears to be a good benchmark, in order to reduce the (optimistic) forecast bias, national governments could be forced to justify any large (optimistic) deviation from this benchmark when presenting their respective national Stability and Growth Programmes.

Keywords: debt sustainability; public debt; fiscal policy; Stability and Growth Pact; SGP; fiscal forecasting; forecast evaluation; real-time data; supranational forecasts; government forecasts; sustainable development; European Commission.

DOI: 10.1504/IJSE.2011.039440

International Journal of Sustainable Economy, 2011 Vol.3 No.2, pp.185 - 209

Published online: 05 Apr 2011 *

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