CPB: Role and position
CPB: Role and position
Bucharest
10-4-08
in policy preparation in the Netherlands
Johan Verbruggen
CPB: Role and position
Content
 CPB in headlines
 Independency is crucial
 CPB’s role in budgetary process
 Ideal position of forecasting authority?
 How to remain independent?
Bucharest
10-4-08
CPB: Role and position
‘Stylized facts’ about CPB
Bucharest
10-4-08
 Founded in 1945 (by Tinbergen)
 ± 150 employees (100 economists)
 Formally part of Ministry of Economic
Affairs ......
 .... though completely independent
 Legal basis for making forecasts
CPB: Role and position
Illustrations of CPB’s
unique position
Bucharest
10-4-08
 All political parties ask CPB to analyse
the economic effects of their election
programmes (results are published before election)
 Consensus about taking CPB’s shortterm forecast as basis for:
1) Budget Proposal
2) Wage negotiations
Central Planning Bureau?
CPB: Role and position
 No planning in strict sense
 Independent analyses relevant for
economic policy
 Official name: CPB Netherlands Bureau for
Economic Policy Analysis
 Customers:
► Government, ministries
Bucharest
10-4-08
► Parliament, political parties
► Trade unions, employers’ associations
► Public debate
CPB: Role and position
Tasks of CPB
Bucharest
10-4-08
 Short-term economic forecasting
(4 times a year)
 Medium- and long-term economic
scenarios
 Economic analysis of policy proposals
(short-term & long-term, CBA)
 Economic research (policy relevant)
Position of CPB
 Part of Ministry of Economic Affairs
CPB: Role and position
► Budget, personnel policy
Bucharest
10-4-08
► Outside requests need Minister’s approval
► Insight in confidential reports and plans
 No political interference with models,
methods and analyses
 No paid assignments from third parties
(all publications free of charge)
CPB: Role and position
Most GDP forecasts are biased
Bucharest
10-4-08
 EC (2004) analysed forecasting errors of GDP
growth in EU countries (Econ. Papers No 210)
 Conclusion: optimism bias GDP growth
projections used in budgetary process
=> negative effect on fiscal performance
 Reason: Ministries have incentives to paint a
rosy picture (they appear successful; down
playing unpopular measures)
Official GDP growth T+1,
projections, 1987 - 2004
CPB: Role and position
Average error
Bucharest
10-4-08
RMSE
Germany
0.61 *
1.91
France
0.42 *
1.45
Italy
0.76 *
1.39
Belgium
0.30
1.23
Austria
 0.10
1.24
Netherlands
 0.18
1.41
* significantly different from 0 at 10 %
source: EC (2004), Economic Papers No 210
CPB: Role and position
Independent forecasts?
Bucharest
10-4-08
 3 countries with ‘unbiased’ GDP growth
forecasts: Netherlands, Belgium, Austria
 In these 3 countries independent institutes, in
other countries forecasts made by ministries
 Advice: forecasting in budgetary process done
by independent authority
CPB: Role and position
IMF (2006) about CPB:
Bucharest
10-4-08
 “The CPB occupies a unique position in fiscal
policy making in the Netherlands. (....) In such
a situation, its independence and credibility are
essential, and the IMF-mission fully supports
the continuation of the current institutional set
up.” (ROSC Report, p. 9)
CPB: Role and position
Budget Plan and CPB forecast
Bucharest
10-4-08
 Budget Plan always published on 3rd Tuesday
in September
 CPB’s short-term forecast published on same
day
 CPB’s economic forecast includes Budget
Plan; Budget Plan includes CPB’s economic
forecast
 Only possible for forecast institute that is part
of government
Headlines of Budget process
CPB: Role and position
MoF (May)
prel. budget plan
CPB (June) macro forecast
MoF (Aug)
CPB
budget forecast
adapted budget plan
final macro forecast
final budget forecast
(Sept)
Bucharest
10-4-08
MoF (Sept)
final budget
CPB: Role and position
Budget influenced by
plans and economy
Bucharest
10-4-08
 Expenditures:
largely driven by policy measures
partly endogeneous (wages civil servants,
unemployment benefits, ...)
 Taxes, premiums:
largely endogenous (econ. growth, wages ...)
partly driven by policy measures
CPB: Role and position
Several budget forecasts
Bucharest
10-4-08
 EMU budget balance = taxes -/- expenditures
 Structural budget balance: taking account of
business cycle
 Robust budget balance: taking account of
business cycle, temporary receipts (gas
revenues) and net interest payments
Long term perspective (ageing)
CPB: Role and position
Actual and robust budget balance
Bucharest
10-4-08
CPB: Role and position
Ideal position of
forecasting authority
Bucharest
10-4-08
Independent
Ministry
institute
-------------------¦-------------------------¦------------------------Public sector
unbiased
biased
confidential info confidential info
-------------------¦-------------------------¦------------------------Private sector
unbiased
n.a.
no confidential
information
-------------------¦--------------------------¦------------------------
How to remain independent?
CPB: Role and position
 Scientific basis
Bucharest
10-4-08
 Total transparancy
(results, assumptions, instruments)
 No revenues from clients
 Organise your own criticism
(national and international visitations)
 Large risk of harming good reputation
(organise internal checks and balances)
CPB: Role and position
More information?
Bucharest
10-4-08
Look at:
www.cpb.nl