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

Beate Jochimsen () and Robert Lehmann ()

Public Choice, 2017, vol. 170, issue 3, 211-230

Abstract: 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.

Keywords: Political economy; Tax revenue forecasts; Fragmentation; Partisan politics (search for similar items in EconPapers)
JEL-codes: F59 H11 H30 H68 P16 (search for similar items in EconPapers)
Date: 2017
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Related works:
Working Paper: On the political economy of national tax revenue forecasts: evidence from OECD countries (2017)
Working Paper: On the political economy of national tax revenue forecasts – Evidence from OECD countries (2015) Downloads
Working Paper: Do OECD countries cheat with their national tax revenue forecasts? (2015) Downloads
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