1. CPB: Role and position Bucharest 10-4-08 CPB: Role and position in policy preparation in the Netherlands Johan Verbruggen

2. CPB: Role and position Bucharest 10-4-08 Content CPB in headlines Independency is crucial CPB’s role in budgetary process Ideal position of forecasting authority? How to remain independent?

3. CPB: Role and position Bucharest 10-4-08 ‘Stylized facts’ about CPB Founded in 1945 (by Tinbergen) ± 150 employees (100 economists) Formally part of Ministry of Economic Affairs.......... though completely independent Legal basis for making forecasts

4. CPB: Role and position Bucharest 10-4-08 Illustrations of CPB’s unique position All political parties ask CPB to analyse the economic effects of their election programmes (results are published before election) Consensus about taking CPB’s short- term forecast as basis for: 1) Budget Proposal 2) Wage negotiations

5. CPB: Role and position Bucharest 10-4-08 Central Planning Bureau? No planning in strict sense Independent analyses relevant for economic policy Official name: CPB Netherlands Bureau for Economic Policy Analysis Customers: ► Government, ministries ► Parliament, political parties ► Trade unions, employers’ associations ► Public debate

6. CPB: Role and position Bucharest 10-4-08 Tasks of CPB 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)

7. CPB: Role and position Bucharest 10-4-08 Position of CPB Part of Ministry of Economic Affairs ► Budget, personnel policy ► 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)

8. CPB: Role and position Bucharest 10-4-08 Most GDP forecasts are biased 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)

9. CPB: Role and position Bucharest 10-4-08 Official GDP growth T+1, projections, 1987 - 2004 Average errorRMSE Germany 0.61 *1.91 France 0.42 *1.45 Italy 0.76 *1.39 Belgium 0.301.23 Austria  0.101.24 Netherlands  0.181.41 * significantly different from 0 at 10 % source: EC (2004), Economic Papers No 210

10. CPB: Role and position Bucharest 10-4-08 Independent forecasts? 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

11. CPB: Role and position Bucharest 10-4-08 IMF (2006) about CPB: “ 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)

12. CPB: Role and position Bucharest 10-4-08 Budget Plan and CPB forecast 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

13. CPB: Role and position Bucharest 10-4-08 Headlines of Budget process MoF ( May ) CPB (June) MoF (Aug) CPB (Sept) MoF (Sept) prel. budget plan macro forecastbudget forecast adapted budget plan final macro forecastfinal budget forecast final budget

14. CPB: Role and position Bucharest 10-4-08 Budget influenced by plans and economy 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

15. CPB: Role and position Bucharest 10-4-08 Several budget forecasts 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)

16. CPB: Role and position Bucharest 10-4-08 Actual and robust budget balance

17. CPB: Role and position Bucharest 10-4-08 Ideal position of forecasting authority Independent Ministry institute -------------------¦-------------------------¦------------------------- Public sector unbiased biased confidential info confidential info -------------------¦-------------------------¦------------------------- Private sector unbiased n.a. no confidential information -------------------¦--------------------------¦------------------------

18. CPB: Role and position Bucharest 10-4-08 How to remain independent? Scientific basis 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)

19. CPB: Role and position Bucharest 10-4-08 More information? Look at: www.cpb.nl