From budgetary forecasts to ex post fiscal data: Exploring the evolution of fiscal forecast errors in the European Union

This paper splits the ex post error in the budget balance, defined as the final budget figure minus the planned figure, into implementation and revision errors, and investigates the determinants of these errors. The implementation error is the difference between the nowcast, published toward the end of the year of budget implementation, and the planned budget, while the revision error is the difference between the final figure and the nowcast. The split takes account of differences in reporting incentives at the different budgeting stages. The predictive content of fiscal plans is important, because it determines the reliability of the budget, while that of the nowcasts is important also because these figures are an input for the next budget and may contain important signals about the fiscal stance. Implementation and revision errors may arise for political and strategic reasons. Our results suggest that an improvement in the quality of institutions, whether measured by the tightness of national fiscal rules, the medium-term budgetary framework or budgetary transparency, increases the quality of budgetary reporting at both the planning and the nowcast stage. This supports the recently adopted requirements on national fiscal frameworks. It also strengthens the case for a close monitoring by the European Commission of national budgeting.