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Budgeting and implementing fiscal policy in Italy

Author

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  • Cepparulo, Alessandra
  • Gastaldi, Francesca
  • Giuriato, Luisa
  • Sacchi, Agnese

Abstract

Forecast errors in budgetary variables are frequent. When systematic, they are a source of concern, as they signal misconduct in fiscal policymaking, undermine the government’s credibility and compromise long-term fiscal sustainability. This paper analyses 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 policymakers’ behaviour 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 systematically fall short one year ahead of 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.

Suggested Citation

  • Cepparulo, Alessandra & Gastaldi, Francesca & Giuriato, Luisa & Sacchi, Agnese, 2014. "Budgeting and implementing fiscal policy in Italy," Journal of Public Policy, Cambridge University Press, vol. 34(3), pages 475-506, December.
    • Handle: RePEc:cup:jnlpup:v:34:y:2014:i:03:p:475-506_00
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    Cited by:

    1. Picchio, Matteo & Santolini, Raffaella, 2020. "Fiscal rules and budget forecast errors of Italian municipalities," European Journal of Political Economy, Elsevier, vol. 64(C).
    2. Beate Jochimsen & Robert Lehmann, 2017. "On the political economy of national tax revenue forecasts: evidence from OECD countries," Public Choice, Springer, vol. 170(3), pages 211-230, March.
    3. Magazzino, Cosimo & Brady, Gordon L. & Forte, Francesco, 2019. "A panel data analysis of the fiscal sustainability of G-7 countries," The Journal of Economic Asymmetries, Elsevier, vol. 20(C).
    4. Beate Jochimsen & Robert Lehmann, 2017. "On the political economy of national tax revenue forecasts: evidence from OECD countries," Public Choice, Springer, vol. 170(3), pages 211-230, March.
    5. Cronin, David & McInerney, Niall, 2023. "Official fiscal forecasts in EU member states under the European Semester and Fiscal Compact – An empirical assessment," European Journal of Political Economy, Elsevier, vol. 76(C).

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