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The Political Economy of Revenue-Forecasting Experience From Low-Income Countries

  • Stephan Danninger
  • Annette Kyobe
  • M. Cangiano

This paper analyzes interference and timeliness in the revenue-forecasting process, using new data on revenue-forecasting practices in low-income countries. Interference is defined as the occurrence of a significant deviation from purely technical forecasts. A theoretical model explains forecasting interference through government corruption. The data broadly supports the model, and the results are robust to alternative explanations. The paper also constructs three indices-transparency, formality, and organizational simplicity-that characterize revenue-forecasting practices, and assesses their effectiveness in producing an upfront-that is, timely-budget envelope. More transparent and simple forecasting processes lead to early budget constraints, while formality has no measurable effect.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/2.

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Length: 31
Date of creation: 01 Jan 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/2
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  1. Ian Lienert & Feridoun Sarraf, 2001. "Systemic Weaknesses of Budget Management in anglophone Africa," IMF Working Papers 01/211, International Monetary Fund.
  2. Cassidy, Glenn & Kamlet, Mark S. & Nagin, Daniel S., 1989. "An empirical examination of bias in revenue forecasts by state governments," International Journal of Forecasting, Elsevier, vol. 5(3), pages 321-331.
  3. Brian A. Jacob & Steven D. Levitt, 2003. "Rotten Apples: An Investigation Of The Prevalence And Predictors Of Teacher Cheating," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 843-877, August.
  4. Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June.
  5. Annette Kyobe & Stephan Danninger, 2005. "Revenue Forecasting; How is it Done? Results From a Survey of Low-Income Countries," IMF Working Papers 05/24, International Monetary Fund.
  6. 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.
  7. Peter F. Christoffersen & Francis X. Diebold, . "Optimal Prediction Under Asymmetric Loss," CARESS Working Papres 97-20, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  8. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
  9. Fjeldstad, Odd-Helge & Tungodden, Bertil, 2003. "Fiscal Corruption: A Vice or a Virtue?," World Development, Elsevier, vol. 31(8), pages 1459-1467, August.
  10. Ehrbeck, Tilman & Waldmann, Robert, 1996. "Why Are Professional Forecasters Biased? Agency versus Behavioral Explanations," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 21-40, February.
  11. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
  12. Stephan Danninger, 2005. "Revenue Forecasts As Performance Targets," IMF Working Papers 05/14, International Monetary Fund.
  13. repec:cup:etheor:v:13:y:1997:i:6:p:808-17 is not listed on IDEAS
  14. Mocan, H. Naci & Azad, Sam, 1995. "Accuracy and rationality of state General Fund Revenue forecasts: Evidence from panel data," International Journal of Forecasting, Elsevier, vol. 11(3), pages 417-427, September.
  15. David Laster & Paul Bennett & In Sun Geoum, 1999. "Rational Bias In Macroeconomic Forecasts," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 293-318, February.
  16. Zellner, Arnold, 1986. "Biased predictors, rationality and the evaluation of forecasts," Economics Letters, Elsevier, vol. 21(1), pages 45-48.
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