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On the political economy of national tax revenue forecasts: evidence from OECD countries

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  • Jochimsen, Beate
  • Lehmann, Robert

Abstract

Sustainable budgets are important quality signals for the electorate. Politicians might thus have an incentive to influence tax revenue forecasts, which are widely regarded as a key element of national budget plans. Looking at the time period from 1996 to 2012, we systematically analyze whether national tax revenue forecasts in 18 OECD countries are biased due to political manipulation. Drawing on theories from the field of political economy, we test three hypotheses using panel estimation techniques. We find support for partisan politics. Left-wing governments seem to produce more optimistic, or less pessimistic, tax revenue forecasts than do right-wing ones. Contrary to the theoretical prediction based on the "common pool" problem, we find that more fragmented governments and parliaments tend to produce more pessimistic, or less optimistic, tax revenue forecasts. We find no empirical evidence that political business cycles play a role in tax revenue forecasts.

Suggested Citation

  • 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.
  • Handle: RePEc:lmu:muenar:55036
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    6. Frank Bohn, 2019. "Political budget cycles, incumbency advantage, and propaganda," Economics and Politics, Wiley Blackwell, vol. 31(1), pages 43-70, March.
    7. Bohn, Frank & Veiga, Francisco José, 2021. "Political forecast cycles," European Journal of Political Economy, Elsevier, vol. 66(C).
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    More about this item

    JEL classification:

    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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