Revenue Forecasting in Low-Income and Developing Countries: Biases and Potential Remedies

  • Marco Cangiano
  • Rahul Pathak
Part of the Palgrave Studies in Public Debt, Spending, and Revenue book series (PDSR)


This chapter surveys the revenue forecasting landscape in middle- and low-income countries, with a focus on examining the existence of forecast bias and potential remedial reforms. After reviewing the scarce literature on revenue forecast bias, we construct a new dataset of ex-ante revenue forecasts and ex-post realizations for 26 countries using the information from the Public Expenditure and Financial Accountability (PEFA) reports. An analysis of forecast errors reveals that most of these countries tend to overestimate their revenues. Also, the magnitude of forecast errors is significantly large and appears to be correlated with the measures of income and administrative capacity. The chapter then reviews the experience of two institutional innovations for improving the budget process and forecasts: semi-autonomous revenue authorities (SARAs) and independent fiscal councils. The evidence on the effectiveness of the former in increasing tax-to-GDP ratios remains mixed, whereas the latter is a relatively new institution whose future trajectory is still unknown in most of the low-income countries. Although neither of these institutions has been explicitly tasked with providing independent revenue forecasts that could address the bias observed in our sample, both of them could directly and indirectly contribute. Lastly, the chapter highlights the lack of research and data on revenue forecasting in low- and middle-income countries and identifies avenues for future research.


  1. Ahlerup, P., Baskaran, T., & Bigsten, A. (2015). Tax innovations and public revenues in sub-Saharan Africa. Journal of Development Studies, 51(6), 689–706.CrossRefGoogle Scholar
  2. Alesina, A., & Passalacqua, A. (2015). The political economy of government debt (Working Paper No. 21821). National Bureau of Economic Research. Retrieved from
  3. Andrews, M., Pritchett, L., & Woolcock, M. (2013). Escaping capability traps through problem driven iterative adaptation (PDIA). World Development, 51, 234–244.CrossRefGoogle Scholar
  4. Andrews, M., Pritchett, L., & Woolcock, M. (2017). Building state capability. Evidence, analysis, action. Oxford: Oxford University Press.CrossRefGoogle Scholar
  5. Beetsma, R., Bluhm, B., Giuliodori, M., & Wierts, P. (2013). From budgetary forecasts to ex post fiscal data: Exploring the evolution of fiscal forecast errors in the European Union. Contemporary Economic Policy, 31(4), 795–813.CrossRefGoogle Scholar
  6. Beetsma, R., & Debrun, X. (Eds.). (2018). Independent fiscal councils: Watchdogs or lapdogs? London: A Book, CEPR Press.Google Scholar
  7. Beetsma, R., Debrun, X., Fang, X., Kim, Y., Lledó, V., Mbaye, S., et al. (2018). Independent fiscal councils: Recent trends and performance. European Journal of Political Economy. Online Only.Google Scholar
  8. Benito, B., Guillamón, M. D., & Bastida, F. (2015). Budget forecast deviations in municipal governments: Determinants and implications. Australian Accounting Review, 25(1), 45–70.CrossRefGoogle Scholar
  9. Blackley, P. R., & DeBoer, L. (1993). Bias in OMB’s economic forecasts and budget proposals. Public Choice, 76(3), 215–232.CrossRefGoogle Scholar
  10. Boukari, M., & Veiga, F. J. (2018). Disentangling political and institutional determinants of budget forecast errors: A comparative approach. Journal of Comparative Economics.
  11. Boylan, R. T. (2008). Political distortions in state forecasts. Public Choice, 136(3–4), 411–427.CrossRefGoogle Scholar
  12. Bretschneider, S., & Schroeder, L. (1985). Revenue forecasting, budget setting and risk. Socio-Economic Planning Sciences, 19(6), 431–439.CrossRefGoogle Scholar
  13. Buettner, T., & Kauder, B. (2010). Revenue forecasting practices: Differences across countries and consequences for forecasting performance. Fiscal Studies, 31(3), 313–340.CrossRefGoogle Scholar
  14. Calitz, E., Siebrits, K., & Stuart, I. (2016). Enhancing the accuracy of fiscal projections in South Africa. South African Journal of Economic and Management Sciences, 19(3), 330–343.CrossRefGoogle Scholar
  15. Chakraborty, L., & Sinha, D. (2018). Has fiscal rules changed the fiscal behaviour of union government in India? Anatomy of budgetary forecast errors in India. International Journal of Financial Research, 9(3), 75–85.CrossRefGoogle Scholar
  16. Cingolani, L. (2013). The state of state capacity: A review of concepts, evidence and measures. Maastricht Graduate School of Governance. Working Paper 053, United Nations University. Retrieved from
  17. Crandall, W. (2010). Revenue administration: Autonomy in tax administration and the revenue authority model. Technical Notes and Manuals, Fiscal Affairs Department. International Monetary Fund, Washington, DC. Retrieved from
  18. Danninger, S. (2005). Revenue forecasts as performance targets. IMF Working Paper 5/14. International Monetary Fund, Washington, DC. Retrieved from
  19. Danninger, S., Cangiano, M., & Kyobe, A. (2005). The political economy of revenue-forecasting experience from low-income countries. IMF Working Paper 05/2. International Monetary Fund, Washington, DC. Retrieved from
  20. Debrun, X., & Jonung, L. (2018). Under threat: Rules-based fiscal policy and how to preserve it. European Journal of Political Economy. Online Only.Google Scholar
  21. Debrun, X., & Kinda, T. (2014). Strengthening post-crisis fiscal credibility: Fiscal councils on the rise—A new dataset. IMF Working Paper.Google Scholar
  22. Di John, J. (2010). The political economy of taxation and resource mobilization in sub-Saharan Africa. In V. Padayachee (Ed.), The political economy of Africa (pp. 110–131). London: Routledge.Google Scholar
  23. Dixit, A., Grossman, G., & Helpman, E. (1997). Common agency and coordination: General theory and application to government policy making. Journal of Political Economy, 105(4), 752–769. University of Chicago Press.Google Scholar
  24. Dom, R. (2018). Semi-autonomous revenue authorities in sub-Saharan Africa: Silver bullet or white elephant. Journal of Development Studies. Online Only.Google Scholar
  25. Feenberg, D. R., Gentry, W., Gilroy, D., & Rosen, H. S. (1989). Testing the rationality of state revenue forecasts. Review of Economics & Statistics, 71(2), 300–308.CrossRefGoogle Scholar
  26. Fjeldstad, O. H., & Moore, M. (2009). Revenue authorities and public authority in sub-Saharan Africa. Journal of Modern African Studies, 47(1), 1–18.CrossRefGoogle Scholar
  27. Gentry, W. M. (1989). Do state revenue forecasters utilize available information? National Tax Journal, 42(4), 429–439.Google Scholar
  28. Gosolov, M., & King, J. (2002). Tax revenue forecasts in IMF supported programs (Working Paper 2/236). International Monetary Fund, Washington, DC.Google Scholar
  29. Hallerberg, M., & von Hagen, J. (1997). Electoral institutions, cabinet negotiations, and budget deficits in the European Union (NBER Working Paper No. 6341). National Bureau of Economic Research, Cambridge, MA.Google Scholar
  30. Heller, P. S. (2005). Understanding fiscal space. IMF Policy Discussion Paper. International Monetary Fund, Washington, DC.
  31. Hemming, R., & Joyce, P. (2013). The role of fiscal councils in promoting fiscal responsibility. In M. Cangiano, T. Curristine, & M. Lazare (Eds.), Public financial management and its emerging architecture. Washington, DC: International Monetary Fund.Google Scholar
  32. Hendrix, C. S. (2010). Measuring state capacity: Theoretical and empirical implications for the study of civil conflict. Journal of Peace Research, 47(3), 273–285.CrossRefGoogle Scholar
  33. IMF. (2013). The functions and impact of fiscal councils. IMF Policy Paper. International Monetary Fund, Washington, DC.Google Scholar
  34. Jochimsen, B., & Lehmann, R. (2017). On the political economy of national tax revenue forecasts: Evidence from OECD countries. Public Choice, 170(3–4), 211–230.CrossRefGoogle Scholar
  35. Jonung, L., & Larch, M. (2006). Improving fiscal policy in the EU: The case for independent forecasts. Economic Policy, 21(47), 493–534.CrossRefGoogle Scholar
  36. Kamlet, M. S., Mowery, D. C., & Su, T.-T. (2018). Whom do you trust? An analysis of executive and congressional economic forecasts. Journal of Policy Analysis and Management, 6(3), 365–384.CrossRefGoogle Scholar
  37. Kauder, B., Potrafke, N., & Schinke, C. (2017). Manipulating fiscal forecasts: Evidence from the German states. FinanzArchiv, 73(2), 213–236.CrossRefGoogle Scholar
  38. Kidd, M., & Crandall, W. (2006). Revenue authorities: Issues and problems in evaluating their success. Washington, DC: International Monetary Fund.Google Scholar
  39. Kopits, G. (2013). Restoring public debt sustainability: The role of independent fiscal institutions. Oxford: Oxford University Press.CrossRefGoogle Scholar
  40. Krol, R. (2013). Evaluating state revenue forecasting under a flexible loss function. International Journal of Forecasting, 29(2), 282–289.CrossRefGoogle Scholar
  41. Krol, R. (2014). Forecast bias of government agencies. Cato Journal, 34(1), 99–112.Google Scholar
  42. Kydland, F. E., & Prescott, E. C. (1977). Rules rather than discretion: The inconsistency of optimal plans. Journal of Political Economy, 85(3), 473–491.CrossRefGoogle Scholar
  43. Kyobe, A., & Danninger, S. (2005). Revenue forecasting—How is it done? Results from a survey of low-income countries. IMF Working Paper. International Monetary Fund, Washington, DC.Google Scholar
  44. Lledó, V., Yoon, S., Fang, X., Mbaye, S., & Kim, Y. (2017). Fiscal rules at a glance. International Monetary Fund, Washington, DC. Retrieved from
  45. McNab, R. M., Rider, M., & Wall, K. D. (2007). Are errors in official U.S. Budget receipts forecasts just noise? Andrew Young School of Policy Studies Research Paper No. 07-22. Georgia State University, Atlanta.
  46. Mikesell, J. L., & Ross, J. M. (2014). State revenue forecasts and political acceptance: The value of consensus forecasting in the budget process. Public Administration Review, 74(2), 188–203.CrossRefGoogle Scholar
  47. Milesi-Ferretti, G. M. (2004). Good, bad or ugly? On the effects of fiscal rules with creative accounting. Journal of Public Economics, 88(1–2), 377–394.CrossRefGoogle Scholar
  48. Mocan, H. N., & Azad, S. (1995). Accuracy and rationality of state general fund revenue forecasts: Evidence from panel data. International Journal of Forecasting, 11(3), 417–427.CrossRefGoogle Scholar
  49. North, D. C. (1991). Institutions. The Journal of Economic Perspectives, 5(1), 97–112.CrossRefGoogle Scholar
  50. Pina, A. M., & Venes, N. M. (2011). The political economy of EDP fiscal forecasts: An empirical assessment. European Journal of Political Economy, 27(3), 534–546.CrossRefGoogle Scholar
  51. Pollitt, C., & Talbot, C. (2003). Unbundled government: A critical analysis of the global trend to agencies, quangos and contractualisation. London: Routledge.Google Scholar
  52. Pritchett, L., Woolcock, M., & Andrews, M. (2010). Capability traps? The mechanisms of persistent implementation failure. Washington, DC: Center for Global Development.CrossRefGoogle Scholar
  53. Ríos, A. M., Guillamón, M. D., Benito, B., & Bastida, F. (2018). The influence of transparency on budget forecast deviations in municipal governments. Journal of Forecasting, 37(4), 457–474.CrossRefGoogle Scholar
  54. Rubin, I. (2018). The politics of public budgeting. Getting and spending, borrowing and balancing (8th ed.). Los Angeles: SAGE/CQ Press.Google Scholar
  55. Schaechter, A., Kinda, T., Budina, N., & Weber, A. (2012). Fiscal rules in response to the crisis-toward the “next generation” rules: A new dataset. IMF Working Paper. Retrieved from
  56. Schick, A. (2013). Reflections on two decades of public financial management reforms. In C. Marco, C. Teresa, & M. Lazare (Eds.), Public financial management and its emerging architecture. Washington, DC: IMF.Google Scholar
  57. Strauch, R., Hallerberg, M., & Hagen, J. von (2004). Budgetary forecasts in Europe-the track record of stability and convergence programmes. ECB Working Paper Series No. 307. European Central Bank. Retrieved from
  58. Taliercio, R. R. (2004). Administrative reform as credible commitment: The impact of autonomy on revenue authority performance in Latin America. World Development, 32(2), 213–232.CrossRefGoogle Scholar
  59. von Haldenwang, C., von Schiller, A., & Garcia, M. (2014). Tax collection in developing countries—New evidence on semi-autonomous revenue agencies (SARAs). Journal of Development Studies, 50(4), 541–555.CrossRefGoogle Scholar
  60. Wehner, J. (2018). Promoting good practices: The OECD principles and beyond. In R. Beetsma & X. Debrun (Eds.), Independent fiscal councils: Watchdogs or lapdogs? (pp. 37–46). London: A Book, CEPR Press.Google Scholar
  61. Weingast, B. R., Shepsle, K. A., & Johnsen, C. (1981). The political economy of benefits and costs: A neoclassical approach to distributive politics. Journal of Political Economy, 89(4), 642.CrossRefGoogle Scholar
  62. Wildavsky, A. (1975). Budgeting: A comparative theory of budgetary processes. Boston, MA: Little, Brown, and Company.Google Scholar
  63. Williams, D. (2012). The politics of forecast bias: Forecaster effect and other effects in New York City revenue forecasting. Public Budgeting and Finance, 32(4), 1–18.CrossRefGoogle Scholar
  64. Williams, D., & Calabrese, T. (2016). The status of budget forecasting. Journal of Public and Nonprofit Affairs, 2(2), 127–160.CrossRefGoogle Scholar
  65. Williams, D., & Onochie, J. (2014). State revenue forecasting accuracy. In International Symposium on Forecasting. Rotterdam. Retrieved from

Copyright information

© The Author(s) 2019

Authors and Affiliations

  • Marco Cangiano
    • 1
    • 2
  • Rahul Pathak
    • 3
  1. 1.Overseas Development Institute (ODI)LondonUK
  2. 2.Better Than Cash AllianceNew YorkUSA
  3. 3.Marxe School of Public and International Affairs, Baruch CollegeNew YorkUSA

Personalised recommendations