Planning or Propaganda? An Evaluation of Germany's Medium-term Budgetary Planning

In Germany, medium-term financial planning (Mifrifi) was introduced at the end of the sixties. This study scrutinizes the German federal government's experience of more than thirty years of financial planning. The paper begins by exploring the potential normative and political-economic driving forces behind fiscal projections. The following empirical analysis evaluates the forecasting quality of medium-term financial planing with regard to expenditures, taxes, and deficits. A model is tested that relates forecast budgetary trends to economic, institutional, and political-economic factors. Current financial planning is shown to be ineffective in making budgetary policy more predictable. Rather than promoting more credible and binding projections, the Maastricht Treaty appears to have encouraged even less realistic budgetary planning and overoptimistic financial projections in Germany. The policy conclusion suggests that responsibility for fiscal forecasts may need to be transferred to an independent institution.