Similar to von Hagen and Wolff (2005) and to Buti et al. (2007) we find a structural
break around 1998. In line with the result in Buti et al. (2007), the break appears to affect
only the equation for deficit-specific SFA. There are two possible explanations for this.
One is the usual argument that the introduction of the SGP has made the deficit rule more
stringent and increased the incentive to use SFA. The other is that with the switch to the
accrual-based ESA95 in 1999, a further channel of deficit-specific SFA opened, namely
cash/accrual differences, which was previously not available.
6.5 Conclusions
The reliability of EMU’s fiscal indicators has been questioned by recent episodes of large
upward deficit revisions. This chapter points out that EMU’s deficit indicator is
particularly fragile in two respects: the identification of transactions in financial assets
and the assessment of accrued revenue and expenditure. It argues that margins for
opportunistic accounting mainly arise from these two weak spots.
Even the simple comparison between deficit and change in debt can help early detection
of inconsistencies in fiscal data. Evidence from three case studies of significant deficit
data revision suggests the usefulness of crosschecks between deficit and changes in gross
debt to reduce the scope for fiscal gimmickry.
Changes in general government debt were much larger than initial deficit figures in
Greece, Italy, and Portugal, before the large upward deficit revisions experienced in
recent years. In Italy, the revision process was gradual and lasted four years. Although the
initial discrepancy between the change in debt and the deficit was more than 2 percent of
GDP, the highest annual revision amounted to only 0.8 points. In Greece, a large
discrepancy between the two indicators was present for several years before the process
of statistical revisions abruptly started in 2004.
Nevertheless, since different items in the reconciliation account between deficit and
change in debt can offset each other, consistency checks must go deeper than the overall
difference between the two indicators. Italy provides an interesting example. In 2001 total
SFA amounted to 4.3 percent of GDP, as against “only” 1.2 percent in 2000. However,
deficit-specific SFA were higher in 2000 than in 2001 (3.4 vs. 3.0 percent of GDP), and
the increase in total SFA in 2001 reflected the decline in the offsetting debt-specific SFA.
Econometric estimates discussed in Section 6.4 provide evidence that deficit-specific
SFA tend to increase with the underlying deficit and debt-specific SFA tend to offset the
impact on total SFA of such an increase. This suggests not only that opportunistic
accounting may have taken place to ensure formal compliance with the deficit rule, but
also that debt-specific SFA may have been used to make the ensuing deficit-debt
discrepancy less visible.
Attention to the quality of statistics has increased in recent years also in the context of the
reform of the SGP. Since 2004, notifications include more detailed information, which
now refer to the various sub-sectors of the general government. In addition, some steps
have recently been taken to improve statistical governance at the EU and national level.
The regulation concerning the statistics used for the excessive deficit procedure has been
amended. The role of Eurostat as the statistical authority in the context of the excessive
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