Working Paper: CEPR ID: DP16276
Authors: Metodij Hadzivaskov; Luca Antonio Ricci; Alejandro Werner; Rene Zamarripa
Abstract: Do governments in Latin America tend to be optimistic when preparing budgetary projections? We address this question by constructing a novel dataset of the authorities’ fiscal forecasts in six Latin American economies using data from annual budget documents over the period 2000-2018. In turn, we compare such forecasts with the outturns reported in the corresponding budget documents of the following years to understand the evolution of fiscal forecast errors. Our findings suggest that: (i) for most countries, there is no general optimistic bias in the forecasts for the fiscal balance-to-GDP ratio (though there may be for the components); (ii) fiscal forecasts have improved for some countries over time, albeit they have worsened for others; (iii) in terms of drivers, we show that forecast errors for the fiscal balance-to-GDP ratio are positively correlated with GDP growth and terms of trade changes and negatively with GDP deflator surprises; (iv) forecast errors for public debt-to-GDP ratios are negatively associated with surprises to GDP growth; (v) lastly, budget balance rules seem to help contain the size of the fiscal forecast errors.
Keywords: forecast error; fiscal balance; fiscal forecasts
JEL Codes: E62; H50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Forecast Errors for Fiscal Balance (H68) | GDP Growth (O49) |
| Forecast Errors for Fiscal Balance (H68) | Terms of Trade Changes (F14) |
| Forecast Errors for Fiscal Balance (H68) | GDP Deflator Surprises (E31) |
| Fiscal Rules (E62) | Fiscal Forecast Errors (H68) |
| GDP Growth Surprises (O49) | Public Debt Forecast Errors (H68) |