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Do Governments Manipulate Their Revenue Forecasts? Budget Speech and Budget Outcomes in the Canadian Provinces

In: Do They Walk Like They Talk?

Author

Listed:
  • Jérôme Couture

    (Université Laval)

  • Louis M. Imbeau

    (Université Laval)

Abstract

This essay aims at documenting and explaining the gap between speech and action through a comparison of revenue forecasts published in Budget Speeches and actual revenues reported in provincial public accounts in Canada from 1986 to 2004. We look for two potential sources of revenue forecast errors: uncertainty and political manipulation. Our regression analysis shows that these errors are related to uncertainty: When economic conditions improve, government revenue is underestimated. Furthermore dependency on federal transfers proved to have an equivocal impact. It led to underestimation in the period of fiscal liberalism and to overestimation in the period of fiscal restraint. We also found that revenue forecasting is subject to political manipulation. Revenue is systematically overestimated in election years and governments of the right significantly underestimated their revenue in the more recent period. Finally, where there is an anti-deficit law, revenue forecast errors are lower.

Suggested Citation

  • Jérôme Couture & Louis M. Imbeau, 2009. "Do Governments Manipulate Their Revenue Forecasts? Budget Speech and Budget Outcomes in the Canadian Provinces," Studies in Public Choice, in: Louis M. Imbeau (ed.), Do They Walk Like They Talk?, chapter 0, pages 155-166, Springer.
    • Handle: RePEc:spr:stpchp:978-0-387-89672-4_9
    DOI: 10.1007/978-0-387-89672-4_9
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    Cited by:

    1. Chatagny, Florian, 2015. "Incentive effects of fiscal rules on the finance minister's behavior: Evidence from revenue projections in Swiss Cantons," European Journal of Political Economy, Elsevier, vol. 39(C), pages 184-200.
    2. Florian Chatagny & Nils Soguel, 2012. "The effect of tax revenue budgeting errors on fiscal balance: evidence from the Swiss cantons," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(3), pages 319-337, June.
    3. Mehdi Alaoui Mhammedi, 2016. "Erreurs de prévision budgétaire : Étude exploratoire des causes des excédents budgétaires dans les structures communales au Maroc," Post-Print hal-01901125, HAL.

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