Luisa Giuriato

Budgeting and implementing fiscal policy in Italy

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.

Expenditure rules for a sounder fiscal position: New perspectives for Italy

The introduction of expenditure rules in the next future in Italy has beenmade viable by recent domestic and European budget reforms. Expenditure rules could improve the difficult conditions of the Italian public finances and could remedy to some of itsmain flaws, in particular, «unexpected» budgetary slippages and poor expenditure control.The analysis is focused on the comparison of some relevant characteristics of three kinds ofexpenditure rules (a ceiling set in terms of a rate of expenditure growth, a fixed term/rolling basis spending limit and an expenditure ceiling within a debt brake mechanism) and onthe impact that their adoption could have on the soundness of the countrys fiscal position.The expenditure counterfactual paths we trace use a real-time data set covering all stagesof the budget process. Political acceptability, coherence with the EU and the domestic fiscalframeworks, predictability of resources and transparency differ according to the ruleadopted and prevent a clear ranking of the expenditure rules to single out the best solution.However, the expenditure ceilings within the debt brake unquestionably grant better resultsin terms of fiscal performance.