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Authorities’ fiscal forecasts in Latin America: are they optimistic?

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  • Hadzi-Vaskov, Metodij
  • Ricci, Luca Antonio
  • Werner, Alejandro Mariano
  • Zamarripa, Rene

Abstract

Do governments in Latin America tend to be optimistic when preparing budgetary projections? We address this question by constructing a novel dataset of the authorities’ fiscal forecasts in six Latin American economies, using data from annual budget documents over the period 2000–2018. We compare such forecasts with the outturns reported in the corresponding budget documents of the following years, to understand the evolution of fiscal forecast errors. Our findings suggest that: (i) there is no general optimistic bias in the forecasts for the fiscal balance-to-GDP ratio; (ii) over time, fiscal forecasts have improved for some countries and worsened for others; (iii) forecast errors for the fiscal balance-to-GDP ratio are positively correlated with GDP growth and terms-of-trade changes, and negatively correlated with GDP deflator surprises; (iv) forecast errors for public debt-to-GDP ratios are negatively associated with surprises to GDP growth; and (v), budget balance rules may help contain fiscal forecast errors.

Suggested Citation

  • Hadzi-Vaskov, Metodij & Ricci, Luca Antonio & Werner, Alejandro Mariano & Zamarripa, Rene, 2023. "Authorities’ fiscal forecasts in Latin America: are they optimistic?," LSE Research Online Documents on Economics 120716, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:120716
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    References listed on IDEAS

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    1. Jeffrey Frankel & Jesse Schreger, 2013. "Over-optimistic official forecasts and fiscal rules in the eurozone," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(2), pages 247-272, June.
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    3. Dean Croushore & Simon van Norden, 2018. "Fiscal Forecasts at the FOMC: Evidence from the Greenbooks," The Review of Economics and Statistics, MIT Press, vol. 100(5), pages 933-945, December.
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    More about this item

    Keywords

    fiscal forecasts; forecast error; fiscal balance; Forecast error;
    All these keywords.

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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