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

Christian Breuer

Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), 2015, vol. 235, issue 1, 22-40

Abstract: This paper examines tax revenue projections in Germany for the period 1968 to 2012 with a focus on forecasting rationality. It is shown 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 predicted tax-GDP-ratio exceeds its structural level of approximately 221/2 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 non-rational behaviour can be traced back to the specific institutional setting of revenue forecasting and budgetary planning in Germany.

Keywords: Tax revenue forecasting; forecast rationality; budgetary planning (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (9)

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Working Paper: On the Rationality of Medium-Term Tax Revenue Forecasts: Evidence from Germany (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:jns:jbstat:v:235:y:2015:i:1:p:22-40

DOI: 10.1515/jbnst-2015-0104

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