Political biases despite external expert participa

Authors: Thiess Buettner Bjoern Kauder

Publish Date: 2015/08/09

Volume: 164, Issue: 3-4, Pages: 287-307

PDF Link

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 taxlaw changes are found to contribute to forecast errorsWe thank three anonymous referees Christian Breuer Thomas Ehrmann Gebhard Flaig Natalie Obergruber Ioana Petrescu Bonnie Wilson and seminar participants at the Annual Meetings of the IIPF 2011 Ann Arbor the Public Choice Society 2015 San Antonio the European Public Choice Society 2015 Groningen and at the University of Munich for helpful comments and suggestionsIssued by the Working Party on Tax Revenue Forecasting in May or November for the current or the next year as specified The data cover the predictions for revenues in the period from 1971 to 2013 In current prices Source Press releases of the Federal Ministry of FinanceRevenue forecast error from the previous May forecast in the case of considering a May forecast or from the previous November forecast in the case of considering a November forecast For the nextyear forecasts the forecast error for the current year is not known at the time the forecast is being prepared In this case the revenue prediction then available is employed Source Federal Ministry of Finance and own calculationsDifference between the GDP growth rate predicted by the government Federal Ministry of Economics and the growth rate predicted by the Council of Economic Experts as issued in November In current prices Source Press releases of the Federal Ministry of Finance annual reports of the Council of Economic Experts and own calculationsDifference between the GDP growth rate predicted by the government Federal Ministry of Economics and the growth rate predicted by the OECD as issued in November/December In current prices Source Press releases of the Federal Ministry of Finance OECD Economic Outlook and own calculations

Keywords: