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On the Rationality of Medium-Term Tax Revenue Forecasts: Evidence from Germany

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  • Christian Breuer

Abstract

In the present paper I examine tax revenue projections in Germany over the period 1968 to 2012 with a focus on forecasting rationality. I show that tax revenue forecasts for the medium-term are upward biased. Overoptimistic revenue projections are particularly pronounced after the German reunification and reflect upward-biased GDP projections in this period. The predicted tax-GDP-ratio appears to be upward biased, as well. The forecasts are likely to overestimate tax revenues if the redicted tax-GDP-ratio exceeds its structural level of approximately 22 ½ percentage points. The results also indicate that forecast errors of short-term projections for the current year exhibit serial correlation. It is conceivable that the specific institutional setting can explain this non-rational behaviour to some extent.

Suggested Citation

  • Christian Breuer, 2014. "On the Rationality of Medium-Term Tax Revenue Forecasts: Evidence from Germany," ifo Working Paper Series 176, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
  • Handle: RePEc:ces:ifowps:_176
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    Citations

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    Cited by:

    1. Thiess Buettner & Bjoern Kauder, 2015. "Political biases despite external expert participation? An empirical analysis of tax revenue forecasts in Germany," Public Choice, Springer, vol. 164(3), pages 287-307, September.
    2. Boysen-Hogrefe, Jens, 2014. "Passt die mittelfristige Steuerschätzung zur Finanzplanung der Länder?," Kiel Policy Brief 78, Kiel Institute for the World Economy (IfW).
    3. Jens Boysen-Hogrefe, 2015. "Konjunkturbereinigungsverfahren der Länder: Eine Quasi-Echtzeitanalyse am Beispiel Schleswig-Holsteins," AStA Wirtschafts- und Sozialstatistisches Archiv, Springer;Deutsche Statistische Gesellschaft - German Statistical Society, vol. 9(1), pages 41-57, April.
    4. repec:mhr:finarc:urn:sici:0015-2218(201706)73:2_213:mffeft_2.0.tx_2-2 is not listed on IDEAS
    5. Fichte, Damian & Warneke, Matthias, 2015. "Berücksichtigung der kalten Progression in den Steuerschätzungen," DSi kompakt 19, DSi - Deutsches Steuerzahlerinstitut des Bundes der Steuerzahler e.V., Berlin.
    6. Beate Jochimsen & Robert Lehmann, 2017. "On the political economy of national tax revenue forecasts: evidence from OECD countries," Public Choice, Springer, vol. 170(3), pages 211-230, March.
    7. Björn Kauder & Niklas Potrafke & Christoph Schinke, 2017. "Manipulating Fiscal Forecasts: Evidence from the German States," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 73(2), pages 213-236, June.
    8. Björn Kauder & Niklas Potrafke & Fabian Ruthardt & Christoph Schinke, 2017. "Beschönigen Landesregierungen fiskalische Kennziffern?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 70(06), pages 36-40, March.
    9. Ademmer, Martin & Boysen-Hogrefe, Jens, 2019. "The impact of forecast errors on fiscal planning and debt accumulation," Kiel Working Papers 2123, Kiel Institute for the World Economy (IfW).
    10. Christian Breuer, 2016. "Steuermehreinnahmen und heimliche Steuererhöhungen – Zu den Ergebnissen der Steuerschätzung vom Mai 2016," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 69(11), pages 46-50, June.
    11. Beate Jochimsen & Robert Lehmann, 2017. "On the political economy of national tax revenue forecasts: evidence from OECD countries," Public Choice, Springer, vol. 170(3), pages 211-230, March.

    More about this item

    Keywords

    Tax revenue forecasting; forecast rationality; budgetary Planning.;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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