Editorial: Best Paper Award 2022

To mark the 160th birthday of the Journal of Economics and Statistics (founded in 1863), the editorial board of the Journal decided to establish a best paper award each year for the best paper published in the previous year. Thus, we are happy to announce the first best paper award for the year 2022. The award is given to an article for its originality, contribution and impact. We are grateful to De Gruyter, our publisher, to support the award with a price of 500€. In an anonymous vote, the editorial board selected the award winning article based on a short list from Peter Tillmann (Gießen), Joachim Wagner (Leuphana) and Nicolas Ziebarth (ZEW).

The Best Paper Award 2022 goes to

“The Impact of Forecast Errors on Fiscal Planning and Debt Accumulation”

by Martin Ademmer and Jens Boysen-Hogrefe, published in volume 242 (2), 171–190.

The paper studies the impact of errors in the forecasts of tax revenues on the fiscal policy of the German states. The authors find that medium-term forecast errors drive budget balances. With only a limited adjustment of public expenditure, the effect stems from the impact of forecast errors on the accumulation of public debt. The authors show that a sizeable share of public debt of the German Länder is due to overly optimistic revenue forecasts.

The analysis is based on data from the Working Party on Tax Revenue Estimates (Arbeitskreis Steuerschätzungen), an independent institution that provides revenue forecasts for the Federal Government and the entirety of German states. This unique institutional design makes the data particularly useful in order to estimate the impact of forecast errors on fiscal policy: the forecast errors can be considered exogenous to the budgeting process of federal states. This is because states have very limited tax sovereignity and have no control over the forecasts.

The paper makes an original contribution to the literature on the role of fiscal institutions and over-optimism on public finances based on a clean identification. A key policy implication of the results is the importance of accurate and unbiased forecasts for budgetary planning processes and the role of independent institutions providing these forecasts.

Congratulations to the winning authors!