A number of countries have delegated the preparation of economic assumptions and projections
underlying the budget to independent bodies.^19 Studies have shown that, if produced by the government,
these assumptions and forecasts (typically for GDP growth, inflation, interest rates, unemployment, and
tax revenues) can be susceptible to systematic overestimation or underestimation.^20 While all forecasts—
whether produced by the government or an independent body—are prone to errors (Table 6.2),
independent forecasts would eliminate systematic, politically motivated biases. In the short run, such
biases can make the budgetary situation look rosier than it is in fact, allowing governments to avoid
making difficult choices. Over time this exacerbates fiscal vulnerabilities. Projections prepared or
scrutinized by independent bodies could contribute to reducing these potential biases. For example, in
Canada, a panel of independent experts from academia and the private sector is polled for
macroeconomic forecasts. These experts underestimated the strength of Canada’s economy since the
mid-1990s, which contributed to a string of larger than expected fiscal surpluses in recent years.^21 In
Chile, two independent expert panels help enforce a structural balance rule (Box 6.33). In the budget
process, the two panels forecast copper prices and the growth of the labor force, real investment, and
total factor productivity.
There are several examples of existing FCs with a mandate limited to impartial analysis of the
government’s policies and their consequences.
The U.S. Congressional Budget Office (CBO) advises Congress and the public on a range of fiscal
issues. It analyzes the president’s budget based on its own assumptions, “scores” new legislative
proposals, and produces a large amount of ad hoc reports. The scoring or budgetary costing of specific
initiatives has played a role in the decisions on whether such initiatives were adopted (Box 4).
(^19) In addition to the more independent institutional arrangements in Canada and Chile, which are elaborated here, in some
countries forecasts are provided by bodies separate from the government as such, but still under its scrutiny in a wider
sense. Examples of such arrangements include Austria (Austrian Institute for Economic Research) and the Netherlands
(Central Planning Bureau).
(^20) Hallerberg, Strauch, and von Hagen (2001); Jonung and Larch (2004); Mühleisen and others (2005); and Strauch,
Hallerberg, and von Hagen (2004) find evidence—albeit mixed—for biased budget forecasts in a number of OECD
countries. In the same vein, a large proportion of governments have tended to overestimate crucial budget parameters in
the past (Table 6.2), according to governments’ own self-assessments.
(^21) Mühleisen and others (2005).