DP7285 Budgeting versus implementing fiscal policy in the EU

Author(s): Roel Beetsma , Massimo Giuliodori , Peter Wierts

Publication Date: April 2009

Keyword(s): Fiscal policy , planning , implementation , real-time data , EU , fiscal rules , medium-term budgetary framework

JEL(s): E62 , H60

Programme Areas: International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP7285.asp.asp

Using real-time data from Europe's Stability and Convergence Programs, we explore how fiscal plans and their implementation in the EU are determined. We find that (1) implemented budgetary adjustment falls systematically short of planned adjustment and this shortfall increases with the projection horizon, (2) variability in the eventual fiscal outcomes is dominated by the implementation errors, (3) there is a limited role for "traditional" political variables, (4) stock-flow adjustments are more important when plans are more ambitious, and (5), most importantly, both the ambition in fiscal plans and their implementation benefit from stronger national fiscal institutions. We emphasise also the importance of credible plans for the eventual fiscal outcomes.