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Public Choice

, Volume 170, Issue 3–4, pp 211–230 | Cite as

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

  • Beate Jochimsen
  • Robert LehmannEmail author
Article

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 

JEL Classification

F59 H11 H30 H68 P16 

Notes

Acknowledgements

The paper substantially improved during a research stay at the BI Norwegian Business School, Department of Economics. We especially thank Benny Geys for his great supervision. We are grateful to the BI Norwegian Business School and Espen R. Moen for their gracious hospitality. We also thank E.ON Ruhrgas and the Research Council of Norway for financially supporting this research stay (Project No. 228495). Furthermore, we are grateful to two anonymous referees and Marcel Thum for their careful readings and suggestions. We thank Michael Weber, Alexander Eck, Gunther Markwardt, Jakob Eberl, Björn Kauder, Niklas Potrafke, Alexander Fink, Marta Curto-Grau, Jan-Egbert Sturm, Florian Chatagny, Michael Berlemann, Klaus Beckmann, and Michael Bräuninger. We are also grateful to seminar participants at the Technische Universität Dresden, the ifo/CES Christmas Conference 2013, the 12th Seminar on Public Economics at the WZB Berlin Social Science Center, the 2nd CGDE Doctoral Workshop at Leipzig University, the 2014 ZEW Public Finance Conference, the 70th Annual Congress of the International Institute of Public Finance (IIPF), the Working Group “Public Finance” at the Federal Ministry of Finance, the Invited Lecture Series Economics at the Helmut-Schmidt-University Hamburg, and the 2015 Annual Congress of the German Economic Association (Verein für Socialpolitik). Technical assistance from Barbara Weigert and Antje Schubert is also gratefully acknowledged. We also thank Deborah Willow for editing this text.

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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.Department of Business and EconomicsBerlin School of Economics and LawBerlinGermany
  2. 2.Ifo Center for Business Cycle Analysis and SurveysIfo Institute – Leibniz-Institute for Economic Research at the University of Munich e.V.MunichGermany

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