Cepparulo, Alessandra and Gastaldi, Francesca and Giuriato, Luisa and Sacchi, Agnese (2011): Budgeting versus implementing fiscal policy:the Italian case.
Download (735kB) | Preview
The budgeting process has been recently reformed in Italy (L. 196/2009) in order to improve control of budget and transparency in the provision of clear information on government fiscal policy. Indeed, the general government final expenditures often deviate significantly from the initial forecasted amounts. Therefore, although the initial budget is often formulated in contractionary stance compared with the previous year’s final account, the final outcome turns out to be expansionary. As a consequence, confidence in the reliability of expenditure estimates in the initial budget and in the value of the initial budget as an indicator of the stance of fiscal policy have been undermined. Using real-time data for Italy, reported in the Relazione Previsionale e Programmatica (RPP) and in the Relazione Unificata sull’Economia e la Finanza Pubblica (RUEF), we explore fiscal plans and their implementation for GDP and general government aggregated and disaggregated items of revenue, expenditure and budget balance over the period 1998-2009. Both reports are employed with the aim of measuring the budgetary policy implementation error, following the methodology of Beetsma et al. (2009). We focus on the first year of the fiscal plans because budgetary slippages mainly occur in this year (Balassone et al. 2010). The main findings suggest that implemented budgetary adjustment falls systematically short of planned adjustment for GDP, for primary balance and overall balance. Actually, the main determinants of the implementation error of both primary and overall balance are the expenditures, in particular, the capital expenditures. Moreover, it seems that errors in macroeconomic forecasts cannot be considered the driving force of the budgetary slippages. Our results are in line with the strand of literature (von Hagen 1992; von Hagen and Harden 1994; Alesina and Perotti 1999; Tanaka 2003) according to which credible plans are the conditio sine qua non for healthy budget outcomes and resorting fiscal transparency and accountability. To improve public budgeting in Italy, we deem necessary a renewed commitment by policy makers in term of planning and control of public expenditures.
|Item Type:||MPRA Paper|
|Original Title:||Budgeting versus implementing fiscal policy:the Italian case|
|English Title:||Budgeting versus implementing fiscal policy: the Italian case|
|Keywords:||fiscal plans; real-time data; implementation; budget process; expenditure and revenue; Italy|
|Subjects:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy
H - Public Economics > H6 - National Budget, Deficit, and Debt > H60 - General
H - Public Economics > H5 - National Government Expenditures and Related Policies
H - Public Economics > H6 - National Budget, Deficit, and Debt > H68 - Forecasts of Budgets, Deficits, and Debt
|Depositing User:||Alessandra Cepparulo|
|Date Deposited:||29. Jul 2011 14:28|
|Last Modified:||12. Feb 2013 18:04|
Alesina A., Perotti R. (1999). Budget Deficit and Budget Institutions,in J. Poterba and J. von Hagen (eds.), Fiscal Institutions and Fiscal Performance, NBER, University of Chicago Press.
Annett A. (2006). Enforcement and the Stability and Growth Pact: how Fiscal Policy Did and Did Not Change Under Europe’s Fiscal Framework. IMF Working Paper WP/06/16.
Artis M. J. (1996). How Accurate are the IMF’s Short-Term Forecasts? Another Examination of the World Economic Outlook. IMF Working Paper WP/96/89.
Artis M., Marcellino M. (2001). Fiscal Forecasting: the Track Record of the IMF, OECD and EC. Econometrics Journal 4(1), 20-36.
Ash J.C.K., Smith D.J., Heravi S.M.(1998). Are OECD Forecasts Rational and Useful? A Directional Analysis. International Journal of Forecasting 14, 381-391.
Balassone F., Francese M. (2004). Cyclical Asymmetry in Fiscal Policy, Debt Accumulation and the Treaty of Maastricht. Temi di Discussione 531, Banca d’Italia.
Balassone F., Momigliano S., Rizza P. (2010). Medium-term fiscal planning under (mostly) short-term governments: Italy 1998-2008. Quaderni di Economia e Finanza, Bank of Italy, forthcoming.
Beetsma R., Giuliodori M. (2008). On the relationship between fiscal plans in the European Union: an empirical analysis based on real-time data. Journal of Comparative Economics36, 221–42.
Beetsma R., Giuliodori M. (2009). Fiscal adjustment to cyclical developments in the OECD: an empirical analysis based on real-time data. Oxford Economic Papers, 1-23.
Beetsma R., Giuliodori M., P. Wierts (2009). Budgeting versus implementing fiscal policy in the EU. Discussion Paper 7285, Centre for Economic Policy Research.
Bernoth K., Hughes Hallett A., Lewis J. (2008). Did fiscal policymakers know what they were doing? Reassessing fiscal policy with real time data. DNB Working Paper 169.
Bohn H. (1998).The Behaviour of US Public Debt and Deficits. Quarterly Journal of Economics 113, 949-63.
Bretschneider S.I., Gorr W.L. Grizzle G., Klay E. (1989). Political and organizational influences on the accuracy of forecasting state government revenues. International Journal of Forecasting 5(3), 307-319.
Buettner T. and B. Kauder (2009). Revenue Forecasting Practices: Differences across Countries and Consequences for Forecasting Performance. CESifo Working Paper 2628.
Chakraborty L.S., Darshy, S. (2008). Budgetary Forecasting in India: Partitioning Errors and Testing for Rational Expectations. MPRA working paper 7538.
Cimadomo J. (2007). Fiscal policy in real time. Working Paper 10, CEPII, Paris.
Davis J.M. (1980). Fiscal marksmanship in the United Kingdom, 1951-78. The Manchester school of Economics and Social Studies XL VIII, 187-202.
Favero C. (2003). How Do European Monetary and Fiscal Authorities Behave?,in Buti (ed.), Monetary and Fiscal Policies in EMU, Cambridge University Press, Chapter 7. Forni L., Momigliano S. (2004). Cyclical sensitivity of fiscal policies based on real-time data. Applied Economics Quarterly 50, 299–326.
Hallerberg M., von Hagen J. (1999). Electoral institutions, cabinet negotiations, and budget deficits within the European Union. In Poterba J., von Hagen J. (eds.),Fiscal institutions and fiscal performance, Chicago: University of Chicago Press, 209–232.
Hughes Hallet A., Kattai R., Lewis J. (2007). Early Warning or Just Wise After the Event? The problem of Using Cyclically Adjusted Budget Balances for Fiscal Surveillance in Real Time. DNB Working Paper 124.
IMF (2001). Manual on Fiscal Transparency. Washington.
Isiklar G., Lahiri K., Loungani P. (2004). How Quickly Do Forecasters Incorporate News? Evidence from Cross-Country Surveys. Mimeo.
Jonung L., Larch M. (2006). Improving fiscal policy in the EU: the case for independent forecasts, Economic Policy 21, 491–534.
Leal T., Pérez J.J,, Tujula M., Vidal J.P. (2007). Fiscal forecasting: lessons from the literature and challenges. Working Paper Series of the European Central Bank 843.
Loungani P. (2000). How Accurate Are Private Sector Forecasts? Cross-Country Evidence from Consensus Forecasts of Output Growth. IMF Working Paper 00/77.
Mincer J., Zarnovitz V. (1969). The Valuation of Economic Forecasts. In J. Mincer (ed.),Economic Forecasts and Expectations, National Bureau of Economic Research, 1-46.
Morrison R.J. (1986). Fiscal marksmanship in the United States: 1950-83. The Manchester school of Economics and Social Studies LIV, 322-333.
Moulin L., Wierts P. (2006). How credible are multiannual budgetary plans in the EU? In D. Franco, M. Marino, and S. Momigliano (eds.), Fiscal Indicators, Bank of Italy, Rome,983–1005.
Mühleisen M.S., Danninger D.H., Krajnyáck K., Sutton B. (2005). How do Canadian Budget Forecasts Compare with Those of Other Industrial Countries?. IMF Working Paper WP/05/66.
Paleologou S.M. (2005). Political Manoeuvrings as Sources of Measurement Errors in Forecasts. Journal of Forecasting 24, 311-324.
Pina A., Venes N. (2007). The political economy of EDP fiscal forecasts: an empirical assessment. Working Paper No. 23, Department of Economics, Technical University of Lisbon.
Strauch R., Hallerberg M., von Hagen J. (2004). Budgetary forecasts in Europe-the track record of stability and convergence programmes. Working Paper 307, ECB, Frankfurt.
Tanaka H. (2003). Fiscal Consolidation and Medium-term Fiscal Planning in Japan. OECD Journal on Budgeting 3(2), 105-137.
Theil H. (1958), Economic Forecasts and Policy. Amsterdam: North Holland.
von Hagen J. (1992).Budgeting Procedures and Fiscal Performance in the European Communities, Economic Papers 96, Commission of the European Communities.
von Hagen J., Harden I.H. (1994). National budget processes and fiscal performance. European Economy Reports and Studies3, 311–418.
von Hagen J., Harden I.H. (1995). Budget Processes and Commitment to Fiscal Discipline. Mimeo, University of Mannheim.
von Hagen, J. (2010). Sticking to fiscal plans: the role of institutions. Public Choice144, 487-503.
Wierts P. (2008). How do expenditure rules affect fiscal behaviour?. DNB Working Papers 166.
World Bank (2005). PEFA, Public Financial Management, Performance Measurement Framework. Washington.