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Revenue Forecasts As Performance Targets

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  • Stephan Danninger

Abstract

Budget revenue forecasts should be best estimates of expected receipts. Often they are not. This paper analyzes the rationale for overstated revenue forecasts and derives conditions for intentional biases. A theoretical model demonstrates that overstated revenue forecasts can be the result of the government''s attempt to boost unobserved revenue collection effort. If positive forecast errors are costly and undermine public credibility of budget expenditure plans, the reverse outcome is possible and governments may understate revenue forecasts. A case study for Azerbaijan is presented in support of the former incentive motive.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/14.

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Length: 20
Date of creation: 01 Jan 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/14

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Related research

Keywords: Revenues; Forecasting models; revenue forecast; tax administration; fiscal authority; revenue forecasting; budget preparation process; revenue collection; budget plans; state budget; budget planning; budget management; government revenue; tax revenue; budget preparation; tax policy; public finances; budget constraint; budget deficit; budget negotiations; government deficit; budget plan; fiscal affairs; taxation; fiscal studies; administrative improvements; budget forecasting; medium-term budget; tax income; fiscal reforms; efficient budget planning; budget approval; fiscal affairs department; fiscal plans; tax collections; fiscal operations; budget estimates; expenditure policy; fiscal policies; fiscal policy; budget expenditure; public expenditure;

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  1. Sanford Grossman & Oliver Hart, . "An Analysis of the Principal-Agent Problem," Rodney L. White Center for Financial Research Working Papers 15-80, Wharton School Rodney L. White Center for Financial Research.
  2. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
  3. Mocan, H. Naci & Azad, Sam, 1995. "Accuracy and rationality of state General Fund Revenue forecasts: Evidence from panel data," International Journal of Forecasting, Elsevier, vol. 11(3), pages 417-427, September.
  4. Ehrbeck, Tilman & Waldmann, Robert, 1996. "Why Are Professional Forecasters Biased? Agency versus Behavioral Explanations," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 21-40, February.
  5. Auerbach, Alan Jeffrey, 1999. "On the Performance and Use of Government Revenue Forecasts," Berkeley Olin Program in Law & Economics, Working Paper Series qt8h845262, Berkeley Olin Program in Law & Economics.
  6. Bretschneider, Stuart I. & Gorr, Wilpen L. & Grizzle, Gloria & Klay, Earle, 1989. "Political and organizational influences on the accuracy of forecasting state government revenues," International Journal of Forecasting, Elsevier, vol. 5(3), pages 307-319.
  7. Tim Pike & David Savage, 1998. "Forecasting the public finances in the Treasury," Fiscal Studies, Institute for Fiscal Studies, vol. 19(1), pages 49-62, February.
  8. Cassidy, Glenn & Kamlet, Mark S. & Nagin, Daniel S., 1989. "An empirical examination of bias in revenue forecasts by state governments," International Journal of Forecasting, Elsevier, vol. 5(3), pages 321-331.
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Cited by:
  1. Stephan Danninger & Annette Kyobe & M. Cangiano, 2005. "The Political Economy of Revenue-Forecasting Experience From Low-Income Countries," IMF Working Papers 05/2, International Monetary Fund.
  2. T. P. Koirala Ph.D., 2012. "Government Revenue Forecasting in Nepal," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 24(2), pages 47-60, October.
  3. repec:nrb:journl:v:24:y:2012:i:2:p:4 is not listed on IDEAS

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