Discussion
Joao Nogueira Martins *
The fiscal convergence criteria of the Maastricht Treaty and the Stability and Growth Pact
have stimulated a large strand of economic literature. Most of this literature is on how to
interpret the available data, how to perform cyclical adjustments, how to identify the
underlying budgetary position and the discretionary behaviour of government, etc. The
infrastructure of indicators (how the deficit is defined; how it is compiled; how reliable
and accurate it is; should it be compiled on a cash or on an accrual basis, should it cover a
narrowly defined government or a wider public sector) has received much less attention.
Balassone, Franco and Zotteri are among the rare authors that have devoted attention to
these issues. And they have done it with quite a provocative spirit, even daring to
consider that the indictors that are relevant for fiscal surveillance in the EU have been a
“misleading compass”, as they put it in a previous and related paper (Balassone et al.,
2004).
The effectiveness of fiscal rules depends crucially on the quality of the fiscal indicators.
The quality of statistical indicators can be generically defined as “fitness for use”. It is, in
fact, a complex multidimensional concept; it covers relevance, timeliness, coherence,
completeness, comparability across time and space, accuracy, reliability, transparency,
etc. The topic of the chapter is on reliability; in technical terms, reliability refers to the
closeness of the initial values to the subsequently revised figures. The authors note that
the EU fiscal indicators do not score high in terms of reliability. This is worrying for two
reasons: First, in the implementation of the EU fiscal framework, the most relevant
decisions - such as deciding whether an excessive deficit exists or has been corrected, if a
given country is complying with Council recommendation, or even if a country has
fulfilled the criteria to enter the euro area, or ultimately whether the Council will have to
impose sanctions - are taken on the basis of the first outcomes. The subsequently revised
data - though of better quality - appear too late to have any decisive impact on the policy
decisions. So if the first outcomes are subject to large revisions afterwards, important
decision will be taken on the basis of wrong data. A second reason to be worried is that,
as the authors point out, given that the fiscal rule is based on a rather simple indicator,
one would expect it to be reliable. Presumably, other more complex fiscal indicators were
rejected (implicitly if not explicitly) because the government deficit would be simple,
easy to compile and reliable.
Balassone et al. establish a link between lack of reliability and opportunistic
manipulation, i.e. political pressure to get data that are rosier than the reality, at least the
first outcomes even if these are revised afterwards. If the lack of reliability is directly
connected with opportunistic manipulation, then the solutions the authors propose seem
to be quite appropriate: (i) increase the scrutiny of the government accounts and (ii)
The views expressed in this chapter are those of the author and are not attributable to the European
Commission.
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