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Jeffrey A. Frankel
James W. Harpel Professor of Capital Formation and Growth
HKS Faculty Research Working Paper Series
Frankel, Jeffrey A., and Jesse Schreger. "Bias in Official Fiscal Forecasts: Can Private Forecasts Help?" HKS Faculty Research Working Paper Series RWP16-021, May 2016.
Government forecasts of GDP growth and budget balances are generally more over-optimistic than private sector forecasts. When official forecasts are especially optimistic relative to private forecasts ex ante, they are more likely also to be over-optimistic relative to realizations ex post. For example, euro area governments during the period 1999-2007 assiduously and inaccurately avoided forecasting deficit levels that would exceed the 3% Stability and Growth Pact threshold; meanwhile private sector forecasters were not subject to this crude bias. As a result, the budget-making process could probably be improved by using private-sector forecasts.
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