Abstract
This essay aims at documenting and explaining the gap between speech and action through a comparison of revenue forecasts published in Budget Speeches and actual revenues reported in provincial public accounts in Canada from 1986 to 2004. We look for two potential sources of revenue forecast errors: uncertainty and political manipulation. Our regression analysis shows that these errors are related to uncertainty: When economic conditions improve, government revenue is underestimated. Furthermore dependency on federal transfers proved to have an equivocal impact. It led to underestimation in the period of fiscal liberalism and to overestimation in the period of fiscal restraint. We also found that revenue forecasting is subject to political manipulation. Revenue is systematically overestimated in election years and governments of the right significantly underestimated their revenue in the more recent period. Finally, where there is an anti-deficit law, revenue forecast errors are lower.
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Notes
- 1.
Boxes represent the distance between the first and the third quartile, the horizontal line in the box represents the median (the second quartile), the “whiskers” represent the range of the distribution, and asterisks point to outliers.
- 2.
For operational definitions, see the appendix.
- 3.
We tested for the possibility of an interaction between the presence of an anti-deficit law and the electoral and partisan cycles, under the premise that the presence of such a law is an indication of more stringent regulatory controls over fiscal policy that should cancel out or at least dampen the effect of both the cycles. The interaction term proved to be insignificant.
- 4.
For an account, see Imbeau 2001.
- 5.
The picture is more finely shaded. Actually, some governments realized huge surpluses that allowed them to reduce or even to eliminate their debt and to accumulate lavish funds, others could reach balanced budget in part while creating deficits in lower tier governments, like cities, school boards, universities, and hospitals.
- 6.
For a meta-analysis of the relationship between party ideology and public spending, see Imbeau, Pétry & Lamari 2001. For a discussion of the relationship between party ideology and budget deficits, see Imbeau 2004.
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Appendix: Variable Definitions and Data Sources
Appendix: Variable Definitions and Data Sources
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Couture, J., Imbeau, L.M. (2009). Do Governments Manipulate Their Revenue Forecasts? Budget Speech and Budget Outcomes in the Canadian Provinces. In: Imbeau, L. (eds) Do They Walk Like They Talk?. Studies in Public Choice, vol 15. Springer, New York, NY. https://doi.org/10.1007/978-0-387-89672-4_9
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