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Forecasting tax revenues in an emerging economy: The case of Albania

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  • Sabaj, Ernil
  • Kahveci, Mustafa

Abstract

Fiscal balance is one of the main concerns of fiscal policy. Although academic and political choices on budget deficit vary due to perspective differences, improving the quality of revenue and expenditure forecasting has become prominent. The seminal researches on this topic present that tax revenue forecasts suffer from high positive biases. As tax forecasts have chain implications on the expenditures side as well, this might lead to high unexpected deficits. According to the IMF 2016 country report on Albania, emerging market economies are suffering higher than advanced ones in tax revenue forecasting. The aim of this paper is to implement new forecasting models and to apply forecast combinations for Albania, where forecast errors are higher than average. The estimation results show that influence of internal and external factors on tax revenue forecasting create a significant improvement on tax revenue accuracy. The estimations and forecast combinations of this paper perform lower errors than official forecasts, which indicate that revision of tax forecasting methodology can increase the accuracy of predictions for emerging market economies.

Suggested Citation

  • Sabaj, Ernil & Kahveci, Mustafa, 2018. "Forecasting tax revenues in an emerging economy: The case of Albania," MPRA Paper 84404, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:84404
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    File URL: https://mpra.ub.uni-muenchen.de/84404/1/MPRA_paper_84404.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Tax revenue; Forecasting; Combination; Emerging market;

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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