Revenue volatility and forecast errors: evidence from Korean local governments

Tae-Ho Lee and Sunjoo Kwak

Local Government Studies, 2020, vol. 46, issue 6, 979-994

Abstract: We empirically analysed the effects of revenue volatility on forecast errors using a panel data set of Korean local governments over the period 2002–2016. Panel data analyses, conducted for acquisition tax, local education tax, and total tax revenue, found that revenue volatility has statistically significant and consistent effects on forecast errors. These findings carry both theoretical and policy implications. In theoretical terms, they suggest that when identifying factors influencing forecast errors, one should take revenue volatility into account, in addition to the economic, organisational, and political factors that have been considered by previous studies. In terms of policy implications, in order to improve the accuracy of revenue forecasts, local tax administrators should analyse the cyclical variability of each tax and reflect the results in the forecasting models.

Date: 2020
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DOI: 10.1080/03003930.2019.1708726

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