The determinants of regional budget forecast errors in federal economies: Spain 1995-2013

Abstract

This paper aims to test the relevance of political and institutional variables in explaining revenue and expenditure budget forecast errors. The results, based on aggregate expenditure and revenue data, suggest that the estimates are driven by the causality of expenditure forecast errors on revenue forecast errors and vice versa, which makes it impossible to disentangle the direction of the causality. The results also indicate that public sector debt, as well as some other institutional variables, plays a role in explaining forecast errors. The robustness of the coefficients depend on whether estimates are based on aggregate values rather than on budget items.