Preaching to the choir? A Comparison of Fiscal Forecasts by Governments, Fiscal Policy Councils and the European Commission in the European Semester Framework
Deficit biasEuropean semesterFiscal consolidationFiscal policy councilsForecastsIndependent fiscal agencies.
The high debt levels experienced in European Countries have lead to academic interest in the deficit bias -the tendency for governments to run budget deficits and accumulate debt. In part one of this thesis a surveyof the economic literature on the origins and solutions to the deficit bias are conducted. The proposedinstitutional solution to the deficit bias in the form of Fiscal Policy Councils (FPC) are outlined and existingEuropean FPCs presented. Based on the works of Calmfors and Wren-Lewis (2011) the EuropeanCommission (EC) is defined as an FPC. Based on this survey, two hypothesis are formulated: (1) theforecasts of future macro-economic events and fiscal performance will differ between the national FPCs andthe national government. (2) The forecasts of macro-economic events and fiscal performance will differbetween the EC and the national governments. Part two comprises of an empirical study to test thehypothesis. It assesses the fiscal forecasts provided by national governments in their stability/convergenceprogrammes, EC recommendations and FPC documents. Fiscal forecast by national government are found tobe broadly in line with forecasts by EC and FPCs. Based on these findings the hypothesis are discardedhowever remarks complicating these conclusions are presented.