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An Analysis of Tax Forecasting Errors in Ireland

Listed author(s):
  • Andrew Hannon

    (Irish Fiscal Advisory Council, Ireland)

  • Eimear Leahy

    (Irish Fiscal Advisory Council, Ireland)

  • Róisín O'Sullivan

    (Smith College, Massachusetts, United States and formerly Irish Fiscal Advisory Council)

Registered author(s):

    This paper examines the tax revenue forecasting performance of the Department of Finance over the period 1997-2014. While the general forecasting framework used reflects standard international practice, forecasting errors are relatively large by international standards. In almost all cases, we find no evidence of bias in the forecasts when considering the major tax heads over various forecast horizons. A decomposition of the forecast errors reveals substantial contributions from sources other than errors in forecasting the macroeconomic environment or in estimating the previous year’s revenue outturn. This suggests that a formal review of specific procedures and assumptions by the Department could yield further improvements in forecasting performance. An innovative exercise examining the routine use of judgement by the Department to adjust the outcome of forecasting equations indicates that this practice often improved the quality of the forecasts.

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    File URL: http://www.esr.ie/article/download/609/145/609-1598-1-PB
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    Article provided by Economic and Social Studies in its journal Economic and Social Review.

    Volume (Year): 47 (2016)
    Issue (Month): 3 ()
    Pages: 391-423

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    Handle: RePEc:eso:journl:v:47:y:2016:i:3:p:391-423
    Contact details of provider: Web page: http://www.esr.ie

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    1. Jeffrey A. Frankel & Jesse Schreger, 2012. "Over-optimistic Official Forecasts in the Eurozone and Fiscal Rules," NBER Working Papers 18283, National Bureau of Economic Research, Inc.
    2. Diarmaid Addison-Smyth & Kieran McQuinn, 2010. "Quantifying Revenue Windfalls from the Irish Housing Market," The Economic and Social Review, Economic and Social Studies, vol. 41(2), pages 201-233.
    3. Thiess Buettner & Bjoern Kauder, 2010. "Revenue Forecasting Practices: Differences across Countries and Consequences for Forecasting Performance," Fiscal Studies, Institute for Fiscal Studies, vol. 31(3), pages 313-340, 09.
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