IDEAS home Printed from https://ideas.repec.org/a/kap/pubcho/v164y2015i3p287-307.html
   My bibliography  Save this article

Political biases despite external expert participation? An empirical analysis of tax revenue forecasts in Germany

Author

Listed:
  • Thiess Buettner
  • Bjoern Kauder

Abstract

This paper explores whether and how political biases arise in an institutional setting where revenue forecasting is delegated to a body that includes experts from institutions neither part of nor controlled by the government. The empirical analysis focuses on the performance of German federal tax revenue forecasts, in the preparation of which the advice of external experts has a long tradition as an institutional safeguard. While, on average, revenue forecasts turn out to be unbiased, the results show that the government exerts an influence. In particular, optimism/pessimism in the government’s GDP forecast helps to explain why the revenue forecast turns out too optimistic/pessimistic. In addition, governmental estimates of the revenue effects of tax-law changes are found to contribute to forecast errors. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Thiess Buettner & Bjoern Kauder, 2015. "Political biases despite external expert participation? An empirical analysis of tax revenue forecasts in Germany," Public Choice, Springer, vol. 164(3), pages 287-307, September.
    • Handle: RePEc:kap:pubcho:v:164:y:2015:i:3:p:287-307
    DOI: 10.1007/s11127-015-0279-2
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11127-015-0279-2
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11127-015-0279-2?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Merola, Rossana & Pérez, Javier J., 2013. "Fiscal forecast errors: Governments versus independent agencies?," European Journal of Political Economy, Elsevier, vol. 32(C), pages 285-299.
    2. Niklas Potrafke, 2012. "Political cycles and economic performance in OECD countries: empirical evidence from 1951–2006," Public Choice, Springer, vol. 150(1), pages 155-179, January.
    3. Jeffrey Frankel, 2011. "Over-optimism in forecasts by official budget agencies and its implications," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 27(4), pages 536-562.
    4. Plesko, George A., 1988. "The Accuracy of Government Forecasts and Budget Projections," National Tax Journal, National Tax Association, vol. 41(4), pages 483-501, December.
    5. Feenberg, Daniel R, et al, 1989. "Testing the Rationality of State Revenue Forecasts," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 300-308, May.
    6. Pina, Álvaro M. & Venes, Nuno M., 2011. "The political economy of EDP fiscal forecasts: An empirical assessment," European Journal of Political Economy, Elsevier, vol. 27(3), pages 534-546, September.
    7. Friedrich Heinemann, 2006. "Planning or Propaganda? An Evaluation of Germany's Medium-term Budgetary Planning," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(4), pages 551-578, December.
    8. Jeffrey Frankel & Jesse Schreger, 2013. "Over-optimistic official forecasts and fiscal rules in the eurozone," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(2), pages 247-272, June.
    9. Potrafke, Niklas, 2013. "Minority positions in the German Council of Economic Experts: A political economic analysis," European Journal of Political Economy, Elsevier, vol. 31(C), pages 180-187.
    10. Lars Calmfors & Simon Wren-Lewis, 2011. "What should fiscal councils do? [Fiscal policy when monetary policy is tied to the mast]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 26(68), pages 649-695.
    11. Xavier Debrun & David Hauner & Manmohan S. Kumar, 2009. "Independent Fiscal Agencies," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 44-81, February.
    12. Breuer Christian, 2015. "On the Rationality of Medium-Term Tax Revenue Forecasts: Evidence from Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 235(1), pages 22-40, February.
    13. George A. Krause & David E. Lewis & James W. Douglas, 2006. "Political Appointments, Civil Service Systems, and Bureaucratic Competence: Organizational Balancing and Executive Branch Revenue Forecasts in the American States," American Journal of Political Science, John Wiley & Sons, vol. 50(3), pages 770-787, July.
    14. Lars Jonung & Martin Larch, 2006. "Improving fiscal policy in the EU: the case for independent forecasts [‘Fiscal forecasting: The track record of the IMF, OECD and EC’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 21(47), pages 492-534.
    15. Bretschneider, Stuart I. & Gorr, Wilpen L. & Grizzle, Gloria & Klay, Earle, 1989. "Political and organizational influences on the accuracy of forecasting state government revenues," International Journal of Forecasting, Elsevier, vol. 5(3), pages 307-319.
    16. Roel Beetsma & Massimo Giuliodori & Peter Wierts, 2009. "Planning to cheat: EU fiscal policy in real time [‘What do we really know about fiscal sustainability in the EU?’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 24(60), pages 753-804.
    17. Thiess Buettner & Bjoern Kauder, 2010. "Revenue Forecasting Practices: Differences across Countries and Consequences for Forecasting Performance," Fiscal Studies, Institute for Fiscal Studies, vol. 31(3), pages 313-340, September.
    18. Richard Boylan, 2008. "Political distortions in state forecasts," Public Choice, Springer, vol. 136(3), pages 411-427, September.
    19. Alan J. Auerbach, 1996. "Dynamic Revenue Estimation," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 141-157, Winter.
    20. Auerbach, Alan J., 1999. "On the Performance and Use of Government Revenue Forecasts," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(4), pages 765-782, December.
    21. Tilman Brück & Andreas Stephan, 2006. "Do Eurozone Countries Cheat with their Budget Deficit Forecasts?," Kyklos, Wiley Blackwell, vol. 59(1), pages 3-15, February.
    22. Ms. Annette J Kyobe & Mr. Stephan Danninger, 2005. "Revenue Forecasting—How is it done? Results from a Survey of Low-Income Countries," IMF Working Papers 2005/024, International Monetary Fund.
    23. Keane, Michael P & Runkle, David E, 1990. "Testing the Rationality of Price Forecasts: New Evidence from Panel Data," American Economic Review, American Economic Association, vol. 80(4), pages 714-735, September.
    24. Robert Hagemann, 2011. "How Can Fiscal Councils Strengthen Fiscal Performance?," OECD Journal: Economic Studies, OECD Publishing, vol. 2011(1), pages 1-24.
    25. Plesko, George A., 1988. "The Accuracy of Government Forecasts and Budget Projections," National Tax Journal, National Tax Association;National Tax Journal, vol. 41(4), pages 483-501, December.
    26. Ivo Bischoff & Wolfgang Gohout, 2010. "The political economy of tax projections," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(2), pages 133-150, April.
    27. Michael P. Keane & David E. Runkle, 1989. "Are economic forecasts rational?," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 13(Spr), pages 26-33.
    28. Nordhaus, William D, 1987. "Forecasting Efficiency: Concepts and Applications," The Review of Economics and Statistics, MIT Press, vol. 69(4), pages 667-674, November.
    29. Blackley, Paul R & DeBoer, Larry, 1993. "Bias in OMB's Economic Forecasts and Budget Proposals," Public Choice, Springer, vol. 76(3), pages 215-232, July.
    30. Berger, Helge & Woitek, Ulrich, 1997. "Searching for Political Business Cycles in Germany," Public Choice, Springer, vol. 91(2), pages 179-197, April.
    31. Jürgen Hagen, 2010. "Sticking to fiscal plans: the role of institutions," Public Choice, Springer, vol. 144(3), pages 487-503, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Björn Kauder & Niklas Potrafke & Christoph Schinke, 2017. "Manipulating Fiscal Forecasts: Evidence from the German States," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 73(2), pages 213-236, June.
    2. Carabotta, Laura & Paluzie, Elisenda & Ramos, Raul, 2017. "Does fiscal responsibility matter? Evidence from public and private forecasters in Italy," International Journal of Forecasting, Elsevier, vol. 33(3), pages 694-706.
    3. European Fiscal Board (EFB), 2020. "2020 annual report of the European Fiscal Board," Annual reports 2020, European Fiscal Board.
    4. Beate Jochimsen & Robert Lehmann, 2017. "On the political economy of national tax revenue forecasts: evidence from OECD countries," Public Choice, Springer, vol. 170(3), pages 211-230, March.
    5. Heinemann, Friedrich & Janeba, Eckhard & Todtenhaupt, Maximilian, 2022. "Incumbency and expectations of fiscal rule compliance: Evidence from surveys of German policy makers," European Journal of Political Economy, Elsevier, vol. 72(C).
    6. Potrafke Niklas & Riem Marina & Schinke Christoph, 2016. "Debt Brakes in the German States: Governments’ Rhetoric and Actions," German Economic Review, De Gruyter, vol. 17(2), pages 253-275, May.
    7. Frank Bohn, 2019. "Political budget cycles, incumbency advantage, and propaganda," Economics and Politics, Wiley Blackwell, vol. 31(1), pages 43-70, March.
    8. Björn Kauder & Niklas Potrafke & Fabian Ruthardt & Christoph Schinke, 2017. "Beschönigen Landesregierungen fiskalische Kennziffern?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 70(06), pages 36-40, March.
    9. Ademmer Martin & Boysen-Hogrefe Jens, 2022. "The Impact of Forecast Errors on Fiscal Planning and Debt Accumulation," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 242(2), pages 171-190, April.
    10. Boukari, Mamadou & Veiga, Francisco José, 2018. "Disentangling political and institutional determinants of budget forecast errors: A comparative approach," Journal of Comparative Economics, Elsevier, vol. 46(4), pages 1030-1045.
    11. Jana Kremer & Jan Kuckuck & Karsten Wendorff, 2022. "Konjunkturbereinigung in der Schuldenbremse reformieren: Revisionen erst zeitverzögert einrechnen [Reforming Cyclical Adjustment in the Debt Brake: Respond to Revised Assessments with a Delay]," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 102(11), pages 830-833, November.
    12. Beate Jochimsen & Robert Lehmann, 2017. "On the political economy of national tax revenue forecasts: evidence from OECD countries," Public Choice, Springer, vol. 170(3), pages 211-230, March.
    13. Bohn, Frank & Veiga, Francisco José, 2021. "Political forecast cycles," European Journal of Political Economy, Elsevier, vol. 66(C).
    14. Lehmann Robert & Wollmershäuser Timo, 2020. "The macroeconomic projections of the German government: A comparison to an independent forecasting institution," German Economic Review, De Gruyter, vol. 21(2), pages 235-270, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Björn Kauder & Niklas Potrafke & Christoph Schinke, 2017. "Manipulating Fiscal Forecasts: Evidence from the German States," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 73(2), pages 213-236, June.
    2. Beate Jochimsen & Robert Lehmann, 2017. "On the political economy of national tax revenue forecasts: evidence from OECD countries," Public Choice, Springer, vol. 170(3), pages 211-230, March.
    3. Merola, Rossana & Pérez, Javier J., 2013. "Fiscal forecast errors: Governments versus independent agencies?," European Journal of Political Economy, Elsevier, vol. 32(C), pages 285-299.
    4. Boukari, Mamadou & Veiga, Francisco José, 2018. "Disentangling political and institutional determinants of budget forecast errors: A comparative approach," Journal of Comparative Economics, Elsevier, vol. 46(4), pages 1030-1045.
    5. Vasconcelos de Deus, Joseph David Barroso & de Mendonça, Helder Ferreira, 2017. "Fiscal forecasting performance in an emerging economy: An empirical assessment of Brazil," Economic Systems, Elsevier, vol. 41(3), pages 408-419.
    6. Niels D. Gilbert & Jasper F.M. Jong, 2017. "Do European fiscal rules induce a bias in fiscal forecasts? Evidence from the Stability and Growth Pact," Public Choice, Springer, vol. 170(1), pages 1-32, January.
    7. Joan Paredes & Javier J. Pérez & Gabriel Perez Quiros, 2023. "Fiscal targets. A guide to forecasters?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(4), pages 472-492, June.
    8. Zidong An & Joao Tovar Jalles, 2020. "On the performance of US fiscal forecasts: government vs. private information," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 48(2), pages 367-391, June.
    9. Cronin, David & McInerney, Niall, 2023. "Official fiscal forecasts in EU member states under the European Semester and Fiscal Compact – An empirical assessment," European Journal of Political Economy, Elsevier, vol. 76(C).
    10. David Cronin & Niall McInerney, 2024. "Institutional Quality and Official Budgetary Forecast Performance in EU Member States," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 80(2), pages 165-192.
    11. Picchio, Matteo & Santolini, Raffaella, 2020. "Fiscal rules and budget forecast errors of Italian municipalities," European Journal of Political Economy, Elsevier, vol. 64(C).
    12. de Mendonça, Helder Ferreira & Baca, Adriana Cabrera, 2022. "Fiscal opacity and reduction of income inequality through taxation: Effects on economic growth," The Quarterly Review of Economics and Finance, Elsevier, vol. 83(C), pages 69-82.
    13. Niels Gilbert & Jasper de Jong, 2014. "Does the Stability and Growth Pact induce a bias in the EC's fiscal forecasts," DNB Working Papers 451, Netherlands Central Bank, Research Department.
    14. Patrícia Martins & Leonida Correia, 2016. "Fiscal Forecasts and Slippages: The Role of the SGP and Domestic Fiscal Frameworks," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 58(2), pages 226-253, June.
    15. Teresa Leal & Javier J. Pérez & Mika Tujula & Jean-Pierre Vidal, 2008. "Fiscal Forecasting: Lessons from the Literature and Challenges," Fiscal Studies, Institute for Fiscal Studies, vol. 29(3), pages 347-386, September.
    16. Joseph David Barroso Vasconcelos de Deus & Helder Ferreira de Mendonça, 2015. "Empirical evidence on fiscal forecasting in Eurozone countries," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 42(5), pages 838-860, October.
    17. Luisa Giuriato & Alessandra Cepparulo & Matteo Barberi, 2016. "Fiscal forecasts and political systems: a legislative budgeting perspective," Public Choice, Springer, vol. 168(1), pages 1-22, July.
    18. Nada Azmy ElBerry & Stijn Goeminne, 2021. "Fiscal transparency, fiscal forecasting and budget credibility in developing countries," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 40(1), pages 144-161, January.
    19. Thiess Buettner & Bjoern Kauder, 2010. "Revenue Forecasting Practices: Differences across Countries and Consequences for Forecasting Performance," Fiscal Studies, Institute for Fiscal Studies, vol. 31(3), pages 313-340, September.
    20. Carabotta, Laura & Paluzie, Elisenda & Ramos, Raul, 2017. "Does fiscal responsibility matter? Evidence from public and private forecasters in Italy," International Journal of Forecasting, Elsevier, vol. 33(3), pages 694-706.

    More about this item

    Keywords

    Tax revenues; Forecasting; Rational prediction ; External experts; Consensus forecast; Fiscal councils ; Budgeting; H68; E32; E62;
    All these keywords.

    JEL classification:

    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:pubcho:v:164:y:2015:i:3:p:287-307. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.