Bias in Official Fiscal Forecasts: Can Private Forecasts Help?

23 Pages Posted: 20 Jun 2016 Last revised: 25 Jan 2023

See all articles by Jeffrey A. Frankel

Jeffrey A. Frankel

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Jesse Schreger

Harvard University - Business School (HBS)

Multiple version iconThere are 2 versions of this paper

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

Frankel, Jeffrey A. and Schreger, Jesse, Bias in Official Fiscal Forecasts: Can Private Forecasts Help? (June 2016). NBER Working Paper No. w22349, Available at SSRN: https://ssrn.com/abstract=2797923

Jeffrey A. Frankel (Contact Author)

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Jesse Schreger

Harvard University - Business School (HBS) ( email )

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