Bias in Official Fiscal Forecasts: Can Private Forecasts Help?
23 Pages Posted: 20 Jun 2016 Last revised: 25 Jan 2023
There are 2 versions of this paper
Bias in Official Fiscal Forecasts: Can Private Forecasts Help?
Date Written: June 2016
Abstract
Government forecasts of GDP growth and budget balances are generally more over-optimistic than private sector forecasts. When official forecasts are especially optimistic relative to private forecasts ex ante, they are more likely also to be over-optimistic relative to realizations ex post. For example, euro area governments during the period 1999-2007 assiduously and inaccurately avoided forecasting deficit levels that would exceed the 3% Stability and Growth Pact threshold; meanwhile private sector forecasters were not subject to this crude bias. As a result, using private sector forecasts as an input into the government budgeting-making process would probably reduce official forecast errors for budget deficits.
Suggested Citation: Suggested Citation