Authorities’ Fiscal Forecasts in Latin America: Are They Optimistic?

By Metodij Hadzi-Vaskov, Luca A Ricci, Alejandro M. Werner, Rene Zamarripa

June 4, 2021

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Metodij Hadzi-Vaskov, Luca A Ricci, Alejandro M. Werner, and Rene Zamarripa. Authorities’ Fiscal Forecasts in Latin America: Are They Optimistic?, (USA: International Monetary Fund, 2021) accessed November 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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. In turn, 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) for most countries, there is no general optimistic bias in the forecasts for the fiscal balance-to-GDP ratio (though there may be for the components); (ii) fiscal forecasts have improved for some countries over time, albeit they have worsened for others; (iii) in terms of drivers, we show that forecast errors for the fiscal balance-to-GDP ratio are positively correlated with GDP growth and terms of trade changes and negatively with GDP deflator surprises; (iv) forecast errors for public debt-to-GDP ratios are negatively associated with surprises to GDP growth; (v) lastly, budget balance rules seem to help contain the size of the fiscal forecast errors.

Subject: Budget planning and preparation, Expenditure, Fiscal policy, Fiscal rules, Fiscal stance, Public debt, Public financial management (PFM)

Keywords: Budget balance rule, Budget planning and preparation, Caribbean, Expenditure rule, Fiscal rules, Fiscal stance, Forecast bias, GDP ratio, Revenue-to-GDP ratio

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/154
Stock No:

WPIEA2021154
ISBN:

9781513573403
ISSN:

1018-5941

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