A new deliverable on Revisions of the cyclically adjusted budget balance published (D2.4, CEPS).

Abstract: The aim of this study is to analyse the revisions of the cyclically adjusted balances of the EU15 countries in order to learn whether the turn of the cycle is particularly prone to error and to evaluate whether the EU’s fiscal framework is well equipped for dealing with potential revisions. The analysis is conducted with real-time fiscal data published by the European Commission for the years 2003-2016. Our study finds that the cyclically adjusted balance forecasts as well as in-year estimates are heavily revised in the following years. Moreover first ex-post data are still significantly revised in the following years. We find no strong evidence to support the notion that these revisions are larger at the turn of the cycle and thus conclude that revisions are of a systematic nature. The revisions are large enough to cause significant differences in the ex-ante and ex-post assessments by the European Commission on whether member states achieved their structural targets. This study elaborates on the built-in flexibility in the Stability and Growth Pact (SGP), on which the Commission can capitalise to avoid unwarranted ex-post sanctioning. Moreover, the SGP entails several safeguards against revisions negatively affecting the policy advice given to member states, particularly with regard to sanctioning.