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Tax Projections and the Budget: Lessons from the 1980's

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  • Auerbach, Alan J

Abstract

Some economists have argued that the disincentive effects of marginal tax rate increases in the 1980s caused revenue to rise by less than had been anticipated. To evaluate the hypothesis, this paper considers OMB revenue forecasts and forecast errors for the period 1982-93. If the revenue gains from tax increases, and the revenue losses from tax cuts, were overstated because of inadequate allowance for behavioral responses, then the forecast errors should be negatively related to the initial revenue estimates of the impact of policy changes. For excise taxes and corporate income taxes, the results suggest that the systematic overprediction of revenues during the period can be explained in part by an underestimate of behavioral responses to taxation.
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  • Auerbach, Alan J, 1995. "Tax Projections and the Budget: Lessons from the 1980's," American Economic Review, American Economic Association, vol. 85(2), pages 165-169, May.
    • Handle: RePEc:aea:aecrev:v:85:y:1995:i:2:p:165-69
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    1. Daniel R. Feenberg & James M. Poterba, 1993. "Income Inequality and the Incomes of Very High-Income Taxpayers: Evidence from Tax Returns," NBER Chapters, in: Tax Policy and the Economy, Volume 7, pages 145-177, National Bureau of Economic Research, Inc.
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    Cited by:

    1. António Afonso & Rui Carvalho, 2014. "Revenue Forecast Errors in the European Union," Working Papers Department of Economics 2014/02, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    2. Andrew Haughwout & Robert Inman & Steven Craig & Thomas Luce, 2000. "Local Revenue Hills: A General Equilibrium Specification with Evidence from Four U.S. Cities," NBER Working Papers 7603, National Bureau of Economic Research, Inc.
    3. Alan J. Auerbach, 1996. "Dynamic Revenue Estimation," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 141-157, Winter.
    4. Vasconcelos de Deus, Joseph David Barroso & de Mendonça, Helder Ferreira, 2017. "Fiscal forecasting performance in an emerging economy: An empirical assessment of Brazil," Economic Systems, Elsevier, vol. 41(3), pages 408-419.
    5. Chimilila, Cyril, 2017. "Forecasting Tax Revenue and its Volatility in Tanzania," African Journal of Economic Review, African Journal of Economic Review, vol. 5(1), January.
    6. Zidong An & Joao Tovar Jalles, 2020. "On the performance of US fiscal forecasts: government vs. private information," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 48(2), pages 367-391, June.
    7. Ley, Eduardo & Misch, Florian, 2013. "Real-time macro monitoring and fiscal policy," Policy Research Working Paper Series 6303, The World Bank.
    8. Mr. Marcos Poplawski Ribeiro & Jan-Christoph Rülke, 2011. "Fiscal Expectations Under the Stability and Growth Pact: Evidence from Survey Data," IMF Working Papers 2011/048, International Monetary Fund.
    9. Feldstein, Martin, 1997. "How Big Should Government Be?," National Tax Journal, National Tax Association, vol. 50(2), pages 197-213, June.
    10. Lledó, Victor & Poplawski-Ribeiro, Marcos, 2013. "Fiscal Policy Implementation in Sub-Saharan Africa," World Development, Elsevier, vol. 46(C), pages 79-91.
    11. Hayley Pallan, 2022. "Sovereign Spreads and Corporate Taxation," IHEID Working Papers 15-2022, Economics Section, The Graduate Institute of International Studies.
    12. Rossana Merola & Javier J. Pérez, 2012. "Fiscal forecast errors: governments vs independent agencies?," Working Papers 1233, Banco de España.
    13. Feldstein, Martin, 1997. "How Big Should Government Be?," National Tax Journal, National Tax Association;National Tax Journal, vol. 50(2), pages 197-213, June.
    14. de Mendonça, Helder Ferreira & Baca, Adriana Cabrera, 2022. "Fiscal opacity and reduction of income inequality through taxation: Effects on economic growth," The Quarterly Review of Economics and Finance, Elsevier, vol. 83(C), pages 69-82.
    15. Arai, Natsuki, 2020. "Investigating the inefficiency of the CBO’s budgetary projections," International Journal of Forecasting, Elsevier, vol. 36(4), pages 1290-1300.

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    More about this item

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems

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