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EUROPEAN COMMISSION DIRECTORATE GENERAL ECONOMIC AND FINANCIAL AFFAIRS Economies of the Member States How Reliable are Statistics for the Stability and Growth Pact? European Economy-Economic Papers 273 Notas Estadísticas (Banco de España) 4 João Nogueira Martins co-author with Luis Gordo (Bank of Spain) DG ECFIN European Commission Motivation • Inconsistency between – the rhythm at which statistics are compiled and revised – the deadlines for political decisions under the SGP • Statistics are compiled three months after the end of the year… and revised for four years until they become final • Policy decisions are taken in the space of a few months… – Policy decisions are taken on the basis of preliminary data which are subject to large revisions. – Revisions often appear too late to be taken into account • Compare with other administrative uses (e.g. GNI,…) • It is unrealistic to slow down the SGP-related procedure “The fundamental objective of the excessive deficit procedure is to identify, as quickly as possible, a situation of excessive deficit or debt and to put an end to it.” ECOFIN Council Conclusions on statistical governance, 8 November 2005 • It is illusory to accelerate significantly the production of fiscal statistics. • Is there a third way? • To be explicitly aware of potential revisions. • Countries are not equal in terms of reliability. • Reliability increases with time. Quality of statistics: A multi dimensional concept • • • • • • • • • Relevance Timeliness Punctuality Accessibility Coherence Completeness Comparability across time and space Accuracy Reliability It refers to the closeness of the initial estimated value to the subsequently revised values • • • • Transparency Interpretability Credibility Cost-efficiency Available sample for EU-15 • Data reported in spring and autumn each year since 1994. • Each reporting covers years t-1 to t-4 • Available series start in 1990 • Latest transmission covers years 2002-2005 (now also 2006) Available sample Deficit (-) figures Mar-94 Sep-94 Mar-95 Sep-95 Mar-96 Sep-96 Mar-97 Sep-97 Mar-98 Sep-98 Mar-99 Sep-99 Mar-00 Sep-00 Mar-01 Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 1990 -8300 -8165 1991 -15900 -15127 -15127 -14995 ES95 starts 1992 -37800 -36601 -36601 -37575 -37575 -37540 1993 -48300 -48664 -49365 -49093 -49093 -49310 -49310 -49660 1994 -46063 -45586 -45382 -45380 -45380 -45532 -45613 -45613 1995 -41742 -40358 -39052 -38854 -38592 -38592 -40032 -40032 1996 -32311 -35971 -34805 -34805 -32970 -32970 -32909 -32909 1997 -14377 -16142 -14823 -15292 -16294 -16294 -16294 -16924 1998 5302 3940 2549 3810 3810 3810 3458 1992 1999 10728 11835 11420 11420 10333 10322 10322 9092 2000 41453 40439 39086 37477 37477 36136 36106 36351 2001 8803 7622 7881 7154 6987 6716 6716 7234 2002 2003 2004 2005 -14058 -15401 -16277 -18074 -18074 -16658 -16817 -34945 -36049 -36977 -36640 -36715 -36893 -36139 -38660 -44727 Revisions • Numerator (deficit / debt) • Denominator (GDP) Our analysis concerns the reliability of the numerator • GDP routine revisions rarely have any impact on the deficit ratio • A routine revision of 1% in GDP level (a very and large revision) would reduce the deficit ratio from 3.00% to 2.97% Calculating average revisions and standard deviations Calculating average revisions and standard deviations Revisions • Routine revisions – New information – Errors or inconsistencies identified – Small steps to better comply with the rules • Structural revisions – Change in accounting systems (ESA79 to ESA95) – Large structural errors corrected – Major changes in accounting systems of Member States An analysis of reliability is only concerned about routine revisions Impact of structural breaks Are we underestimating reliability? Deficit and debt Which are more reliable? Two approaches Did data become less reliable because of ESA95? Is there a link between deficit ratio is revisions? Conclusions (1) • Policy makers should be made aware that data are subject to revisions • One cannot anticipate revisions, but countries are different… • …useful to make explicit uncertainty ranges around the reported data • Countercheck official deficit data with other indicators Conclusions (2) • FR, DE, UK: most reliable deficit • (GR), DK, PT, LU, SE, IT: largest dispersion of revisions • Large countries report better data? (but compare IT and IE) • (GR), IT, PT: largest deficit-increasing revisions • DK, SE: large revisions, offsetting each other (in line with other evidence, e.g. statistical discrepancies) Conclusions (3) • Debt not necessarily more reliable than deficit • Debt better than deficit: DE, ES, LU, IT, PT • Deficit better than debt: BE, FR, AT, FI • Conjecture: Institutional issues (deficit and debt compilation; debt decentralisation, consolidation, financing of public enterprises) explain these differences Conclusions (4) • There is no evidence that shift from ESA79 to ESA95 has led to a deterioration of reliability • Complex rules, more experience, better technology,… Conclusions (5) • Size of deficit may have an impact on revisions – Is 3% a focal point? – Biased sample? – Independence of data compilers? Conclusions (6) • Revisions are not an indicator of quality • Reliability is only one dimension of quality • Revision are inevitable; even desirable • Regular analysis of revisions • Improvement in processes. Conclusions (7) • It would be very useful to compare EU Member States with other OECD countries • Does the SGP have an impact on the behaviour of data compilers? EUROPEAN COMMISSION DIRECTORATE GENERAL ECONOMIC AND FINANCIAL AFFAIRS How Reliable are Statistics for the Stability and Growth Pact? Comments and questions: WELCOME Thanks for your attention!!