Budget Credibility of Subnational Governments: Analyzing the Fiscal Forecasting Errors of 28 States in India

Lekha Chakraborty, Pinaki Chakraborty and Ruzel Shrestha

MPRA Paper from University Library of Munich, Germany

Abstract: Budget credibility, the ability of governments to accurately forecast the macro-fiscal variables, is crucial for effective Public Finance Management (PFM). Fiscal marksmanship analysis captures the extent of errors in the budgetary forecasting. The fiscal rules can determine fiscal marksmanship, as effective fiscal consolidation procedure affects the fiscal behaviour of the states in conducting the budgetary forecasts. Against this backdrop, applying Theil’s technique, we analyse the fiscal forecasting errors for 28 States (except Telengana) in India for the period 2011-12 to 2015-16. There is a heterogeneity in the magnitude of errors across subnational governments in India. The forecast errors in revenue receipts have been greater than revenue expenditure. Within revenue receipts, the errors are pronounced more significantly in grants component. Within expenditure budgets, the errors in capital spending are found greater than revenue spending in all the States. Partitioning the sources of errors, we identified that the errors were more broadly random than systematic bias, except for a few crucial macro-fiscal variables where improving the forecasting techniques can provide better estimates.

Keywords: forecast errors; fiscal policies; fiscal forecasting; political economy; fiscal marksmanship (search for similar items in EconPapers)
JEL-codes: C53 E62 H6 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-for and nep-mac
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Working Paper: Budget Credibility of Subnational Governments: Analyzing the Fiscal Forecasting Errors of 28 States in India (2019)
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