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On the performance of US fiscal forecasts: government vs. private information

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  • Zidong An
  • Joao Tovar Jalles

Abstract

Purpose - This paper contributes to shed light on the quality and performance of US fiscal forecasts. Design/methodology/approach - The first part inspects the causes of official fiscal forecasts revisions by Congressional Budget Office (CBO) between 1984 and 2016 that are due to technical, economic or policy reasons. Findings - Both individual and cumulative means of forecast errors are relatively close to zero, particularly in the case of expenditures. CBO averages indicate net average downward revenue and expenditure revisions and net average upward deficit revisions. Focusing on the causes of the technical component, the authors uncover that its revisions are quite unpredictable, which cast doubts on inferences about fiscal policy sustainability that rely on point estimates. Comparing official with private-sector (consensus) forecasts, despite the informational advantages CBO might have, one cannot unequivocally say that one or the other is more accurate. Evidence also seems to suggest that CBO forecasts are consistently heavily biased toward optimism while this is less the case for consensus forecasts. Not only is the extent of information rigidity is more prevalent in CBO forecasts but also evidence seems to indicate that consensus forecasts dominate CBO in terms of information content. Originality/value - The authors provide a detailed analysis on US fiscal forecasts both using revenue and expenditure and decomposing forecast errors into several explanatory components. Moreover, the authors compare official with private-sector (consensus) forecasts and assess which one is better or preferred.

Suggested Citation

  • Zidong An & Joao Tovar Jalles, 2020. "On the performance of US fiscal forecasts: government vs. private information," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 48(2), pages 367-391, June.
    • Handle: RePEc:eme:jespps:jes-08-2019-0388
    DOI: 10.1108/JES-08-2019-0388
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    More about this item

    Keywords

    Forecasting performance; Encompassing tests; CBO; Consensus; C53; E17; H62;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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