The Political Economy of Revenue-Forecasting Experience from Low-Income Countries
31 Pages Posted: 6 Jan 2006
Date Written: January 2005
This paper analyzes interference and timeliness in the revenue-forecasting process, using new data on revenue-forecasting practices in low-income countries. Interference is defined as the occurrence of a significant deviation from purely technical forecasts. A theoretical model explains forecasting interference through government corruption. The data broadly supports the model, and the results are robust to alternative explanations. The paper also constructs three indices - transparency, formality, and organizational simplicity - that characterize revenue-forecasting practices, and assesses their effectiveness in producing an upfront - that is, timely - budget envelope. More transparent and simple forecasting processes lead to early budget constraints, while formality has no measurable effect.
Keywords: revenue forecasting, corruption, forecasting bias
JEL Classification: H20
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