Real-time output data , fiscal policy , data revisions , public debt
Abstract:
This paper considers the effects of inaccurate real-time output
data on fiscal policy, both with respect to budgetary planning and fiscal
surveillance. As newer and better information becomes available, output
data available in real time get revised and are likely to conflict with final
figures that are only released some years later. By contrast, fiscal policy
is inevitably based on real-time figures. The paper develops a simple but
comprehensive modeling framework to formalize the linkages between output
data revisions and fiscal policy and combines it with a newly compiled
dataset from the International Monetary Fund’s World Economic Outlook,
comprising final and real-time output data for 175 countries, over a period
of 17 years. Based on a simulation exercise, it finds that output
data revisions alone may significantly undermine the reliability of real-time
estimates of the overall and structural fiscal balances, and that output
data revisions may result in unplanned and substantial debt accumulation.
The paper also shows that there are significant differences across country
income groups.
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