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Authorities’ Fiscal Forecasts in Latin America: Are They Optimistic?
Author:
Metodij Hadzi-Vaskov
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Mr. Luca A Ricci
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Alejandro M. Wernernull

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Rene Zamarripa
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Series:
IMF Working Papers
Volume/Issue:
Volume 2021: Issue 154
Language:
English
Publication Date:
04 Jun 2021
DOI:
https://doi.org/10.5089/9781513573403.001
ISBN:
9781513573403
ISSN:
1018-5941
Pages:
42
Keywords:
forecast bias; budget balance rule; GDP ratio; expenditure rule; revenue-to-GDP ratio; Fiscal stance; Budget planning and preparation; Fiscal rules; Caribbean
Legal-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.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2021: Issue 154