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Budgeting and implementing fiscal policy in Italy

Published online by Cambridge University Press:  24 April 2014

Alessandra Cepparulo ,
Francesca Gastaldi ,
Luisa Giuriato  and
Agnese Sacchi
Alessandra Cepparulo
Affiliation:
Department of Economics, Society and Politics, University of Urbino, Italy E-mail: alessandra.cepparulo@uniurb.it
Francesca Gastaldi
Affiliation:
Department of Economics and Law, Sapienza University, Italy E-mail: francesca.gastaldi@uniroma1.it
Luisa Giuriato
Affiliation:
Department of Economics and Law, Sapienza University, Italy E-mail: luisa.giuriato@uniroma1.it
Agnese Sacchi
Affiliation:
Faculty of Economics, Universitas Mercatorum, Italy Governance and Economics research Network, Spain E-mail: a.sacchi@unimercatorum.it
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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.

Keywords

H61H68E62budgetary processfiscal forecastsimplementation errorreal-time data
Type
Research Article
Information
Journal of Public Policy , Volume 34 , Supplement 3 , December 2014 , pp. 475 - 506
Copyright
Copyright © Cambridge University Press, 2014 

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