CAMBRIDGE – Why do many countries find it hard to control their budgets? Concern about budget deficits has become a burning political issue in the United States; helped to persuade the United Kingdom to enact stringent cuts, despite a weak economy; and is the proximate cause of the Greek sovereign-debt crisis, which has grown to engulf the entire eurozone. Indeed, among industrialized countries, hardly anyone is immune from fiscal woes.
Clearly, part of the blame lies with voters who don’t want to hear that budget discipline means cutting programs that matter to them, and with politicians who tell voters only what they want to hear. But another factor has attracted little notice: systematically over-optimistic official forecasts.