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Incentive Effects of Fiscal Rules on the Finance Minister's Behaviour: Evidence from Revenue Projections in Swiss Cantons

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Abstract

Predicting available tax revenue accurately is a key step of scal policy. It has recently been shown that revenue prediction errors have a direct impact on scal decits. In the current paper we explore the relationship between the ideology of the nance minister and tax revenue projection errors and assess how the stringency of scal rules does alter this relationship. We use a panel dataset on 26 Swiss cantons over the period 1980-2007 as well as a new dataset on 99 nance ministers at the cantonal level. We nd a rather counter-intuitive positive relationship between the ideology of the nance minister and tax revenue projection errors in the sense that a more left wing nance minister produces relatively more conservative forecasts. We also nd that scal rules reduce the eect of ideology on tax revenue projection errors. These results suggest that left wing nance ministers need to curb decits relatively more in order to signal the same level of competence than a right wing nance minister to the voters. It also suggests that scal rules render the signal less informative to the voters and thereby reduce the incentive for left wing nance ministers to be more conservative in their projections.

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  • Florian Chatagny, 2013. "Incentive Effects of Fiscal Rules on the Finance Minister's Behaviour: Evidence from Revenue Projections in Swiss Cantons," KOF Working papers 13-347, KOF Swiss Economic Institute, ETH Zurich.
  • Handle: RePEc:kof:wpskof:13-347
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    File URL: http://dx.doi.org/10.3929/ethz-a-010034062
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    1. repec:mhr:finarc:urn:sici:0015-2218(201706)73:2_213:mffeft_2.0.tx_2-2 is not listed on IDEAS
    2. Jochimsen, Beate & Lehmann, Robert, 2017. "On the political economy of national tax revenue forecasts: evidence from OECD countries," Munich Reprints in Economics 55036, University of Munich, Department of Economics.
    3. Heiko T. Burret & Lars P. Feld, 2018. "Vertical effects of fiscal rules: the Swiss experience," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(3), pages 673-721, June.
    4. Marianne Yousseff ISKANDAR, 2016. "The Effectiveness of Fiscal Rules - The Case of Switzerland," Journal of Social and Administrative Sciences, KSP Journals, vol. 3(3), pages 264-267, September.
    5. Hirota, Haruaki & Yunoue, Hideo, 2017. "The effects of the new fiscal rule and creative accounting: Empirical evidence from Japanese municipalities," MPRA Paper 79812, University Library of Munich, Germany.
    6. Chatagny, Florian & Siliverstovs, Boriss, 2015. "Evaluating rationality of level and growth rate forecasts of direct tax revenues under flexible loss function: Evidence from Swiss cantons," Economics Letters, Elsevier, vol. 134(C), pages 65-68.
    7. 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.
    8. Kauder, Björn & Potrafke, Niklas & Schinke, Christoph, 2017. "Manipulating Fiscal Forecasts: Evidence from the German States," Munich Reprints in Economics 49915, University of Munich, Department of Economics.
    9. 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.
    10. repec:spr:sjecst:v:154:y:2018:i:1:d:10.1186_s41937-017-0017-4 is not listed on IDEAS
    11. repec:eee:poleco:v:52:y:2018:i:c:p:166-191 is not listed on IDEAS

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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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