Budgeting and implementing fiscal policy in Italy

Abstract

Forecast errors in budgetary variables are frequent. When systematic, they are a source of concern as they signal misconduct in fiscal policy-making, undermine the government’s credibility and compromise long-term fiscal sustainability. This paper analyzes the characteristics of fiscal forecasting and implementation errors in Italy using real-time data over the period 1998-2009. Several empirical methods are applied in order to identify the features of the policymakers’ behavior in preparing and implementing annual fiscal policy, and to discover potential determinants in the formation of the implementation errors. Our results show that implemented budgetary plans fall systematically short of one-year ahead ambitious planned adjustments for the main public finance aggregates. Fiscal illusion dominates revenue and GDP forecasting, and preliminary data releases are severely biased estimators of the final data, especially for expenditures. The role of the parliamentary session in driving a severe expenditure drift is confirmed

On the political economy of national tax revenue forecasts: evidence from OECD countries

“…Instead of analyzing forecast errors, Jong-A- Pin et al (2012) use different data vintages of current revenues and find distortions within the resulting data revisions along the electoral cycle. Another study that focuses on real-time data is the one provided by Cepparulo et al (2014). An extensive survey on various forecasts and fiscal policy is provided by Cimadomo (2015).…”

“…As the dependent variable, we use the ex-post percentage forecast error (F EP ERC), which shows the over-or underestimation of tax revenues in terms of realized revenues for every state s in year t. It is calculated as follows: Cepparulo et al (2014), as we do not analyze a real-time setting. Whenever F EP ERC shows a positive or negative sign, future tax revenues were overestimated or underestimated, respectively.…”

Fiscal rules and budget forecast errors of Italian municipalities

“…However, the misrepresentation of budgetary decisions in the Italian panorama is a further focal issue, which was not investigated by Grembi et al (2016). It is indeed well-documented in Cepparulo et al (2014) and Anessi-Pessina and Sicilia (2015) for national and local context, respectively.…”