Don't Blame the Government!? An Assessment of Debt Forecast Errors with a View to the Economic Governance Review

In view of the increased importance of debt developments in the EU governance framework, this paper investi- gates the accuracy and the main causes of forecast errors in (government) debt projections. We find a positive average debt forecast error for European Union member states, which increases with the projection horizon. Underestimation of debt growth is particularly relevant for countries with high government debt. The main drivers of the debt forecast errors seem to be partly outside direct government control: Wrongly projected over- all GDP developments and stock flow adjustments - a factor which has not been considered in the literature so far. Moreover, the high uncertainty in debt forecasts is also inherent in the European Commission’s benchmark forecasts: only their now-cast remains unbiased