Information content and consensus effect of fiscal plans

This paper investigates the extent to which fiscal plans provide novel information to investors and induce consensus over governments’ fiscal forecasts. We exploit the mandatory disclosure requirements of the Stability and Growth Pact and document that fiscal plans are generally informative, but investors interpret their content differently. We further show that, while fiscal plans that foresee spending cuts during downturns have substantial information content, they cause opinion divergence. While these findings are consistent with recent evidence on the contractionary and uncertain effects of procyclical fiscal policy during downturns, they cast doubts over governments’ ability to anchor fiscal expectations during downturns.