Working Paper: CEPR ID: DP7285
Authors: Roel Beetsma; Massimo Giuliodori; Peter Wierts
Abstract: 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 emphasise also the importance of credible plans for the eventual fiscal outcomes.
Keywords: EU; Fiscal Policy; Fiscal Rules; Implementation; Medium-Term Budgetary Framework; Planning; Real-Time Data
JEL Codes: E62; H60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Initial budget conditions (H61) | Planned adjustments (E63) |
| Economic growth forecasts (F17) | Ambition of fiscal plans (E62) |
| Ambition of fiscal plans (E62) | Adherence to those plans during implementation (D78) |
| Planned adjustments (E63) | Implemented budgetary adjustments (H61) |
| Implementation errors (C52) | Variability in fiscal outcomes (H68) |
| National fiscal institutions (H69) | Ambition of fiscal plans (E62) |
| National fiscal institutions (H69) | Successful implementation of fiscal plans (H69) |