Fifty years of fiscal planning and implementation in the Netherlands

- Planned surpluses and real growth projections are on average unbiased.
- Economic, political and institutional factors are relevant for budgeting.
- “trend-based budgeting” policy has worked quite well for Netherlands.
- This includes expenditure ceilings and during most years cautious forecasting.
- Dutch experience may provide some directions for institutional revision elsewhere.

Using real-time data from the annual budgets over the period 1958-2009, we explore budgetary planning and implementation in the Netherlands. Three fiscal policy regimes are distinguished. Our key findings are the following. First, plans are on average unbiased, although they are overoptimistic during earlier parts of our sample and overly pessimistic during the later parts of our sample, when revenues are under-projected. Second, general economic conditions and the state of the public finances are important determinants of both plans and their implementation. Third, this is also the case for political and institutional factors. Expenditure overruns are partly related to political factors, whereas cautious revenue forecasts relate to the institutional setting. Fourth, under the most recent regime of “trend-based budgeting” implementation was strongest relative to planning. In fact, this regime may contain some elements that are useful for designing national fiscal arrangements elsewhere.