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Revenue Forecasting Practices: Differences across Countries and Consequences for Forecasting Performance

  • Thiess Buettner
  • Bjoern Kauder

This paper reviews the practice and performance of revenue forecasting in selected OECD countries. While the mean forecast errors are small in most countries, the precision of the forecasts measured by the standard deviation of the forecast error differs substantially across countries. Based on a comparison of forecasting practices we show that these differences can be attributed to a large part to differences in the timing of the forecasts and in the tax structure. In addition, we find some evidence that differences in methods and institutions also matter for the forecasting precision. In particular, we find that the use of macroeconomic models as well as the independence of revenue forecasting are associated with a lower standard deviation of the forecast error.

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Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

Volume (Year): 31 (2010)
Issue (Month): 3 (09)
Pages: 313-340

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Handle: RePEc:ifs:fistud:v:31:y:2010:i:3:p:313-340
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  1. Teresa Leal & Javier J. Pérez & Mika Tujula & Jean-Pierre Vidal, 2008. "Fiscal Forecasting: Lessons from the Literature and Challenges," Fiscal Studies, Institute for Fiscal Studies, vol. 29(3), pages 347-386, 09.
  2. Feenberg, D.R. & Gentry, W. & Gilroy, D. & Rosen, H.S., 1988. "Testing The Rationality Of State Revenue Forecasts," Papers 16, Princeton, Woodrow Wilson School - Discussion Paper.
  3. Frits Bos, 2007. "The Dutch fiscal framework; history, current practice and the role of the CPB," CPB Document 150, CPB Netherlands Bureau for Economic Policy Analysis.
  4. 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.
  5. Auerbach, Alan J., 1999. "On the Performance and Use of Government Revenue Forecasts," National Tax Journal, National Tax Association, vol. 52(n. 4), pages 765-82, December.
  6. Lars Jonung & Martin Larch, 2004. "Improving fiscal policy in the EU: the case for independent forecasts," European Economy - Economic Papers 210, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  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. Richard Boylan, 2008. "Political distortions in state forecasts," Public Choice, Springer, vol. 136(3), pages 411-427, September.
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