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

43 Pages Posted: 14 Jul 2021

See all articles by Metodij Hadzi-Vaskov

Metodij Hadzi-Vaskov

International Monetary Fund (IMF)

Luca A. Ricci

International Monetary Fund (IMF) - Research Department

Alejandro M. Werner

International Monetary Fund (IMF)

Rene Zamarripa

University of California, Irvine

Date Written: June 1, 2021

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. 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.

JEL Classification: E62, H50

Suggested Citation

Hadzi-Vaskov, Metodij and Ricci, Luca Antonio and Werner, Alejandro M. and Zamarripa, Rene, Authorities' Fiscal Forecasts in Latin America: Are They Optimistic? (June 1, 2021). CEPR Discussion Paper No. DP16276, Available at SSRN: https://ssrn.com/abstract=3886746

Metodij Hadzi-Vaskov (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Luca Antonio Ricci

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6007 (Phone)
202-623-4072 (Fax)

Alejandro M. Werner

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Rene Zamarripa

University of California, Irvine ( email )

P.O. Box 19556
Science Library Serials
Irvine, CA 62697-3125
United States

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