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The Efficiency of the Government’s Revenue Projections

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  • Arai, Natsuki
  • Iizuka, Nobuo
  • Yamamoto, Yohei

Abstract

This paper evaluates the efficiency of the Japanese fiscal authority’s revenue projections from 1960 to 2020 using real-time data. Revenue projections are not efficient, primarily due to the conditioning projections of output growth. By adjusting the forecasts based on the results of real-time forecast evaluations, this paper finds that the out-of-sample accuracy of the one-year-ahead projections could be significantly improved by a magnitude of up to 10 percent in root mean squared errors. The analysis of the disaggregated series suggests that corporate tax projections are the least efficient. The fiscal authority’s loss function is estimated to be asymmetric, making the underprediction of revenues more common.

Suggested Citation

  • Arai, Natsuki & Iizuka, Nobuo & Yamamoto, Yohei, 2022. "The Efficiency of the Government’s Revenue Projections," Discussion paper series HIAS-E-122, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    • Handle: RePEc:hit:hiasdp:hias-e-122
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    More about this item

    Keywords

    Revenue Projections; Japan; Forecast Evaluation; Out-of-Sample Forecast Accuracy;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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