The Political Economy of Revenue-Forecasting Experience from Low-Income Countries

31 Pages Posted: 6 Jan 2006

See all articles by Stephan Danninger

Stephan Danninger

International Monetary Fund (Research Department)

Annette J. Kyobe

International Monetary Fund (IMF)

Date Written: January 2005

Abstract

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

Suggested Citation

Danninger, Stephan and Kyobe, Annette J., The Political Economy of Revenue-Forecasting Experience from Low-Income Countries (January 2005). IMF Working Paper No. 05/2, Available at SSRN: https://ssrn.com/abstract=873685

Stephan Danninger (Contact Author)

International Monetary Fund (Research Department) ( email )

700 19th Street, NW
Washington, DC 20431
United States

Annette J. Kyobe

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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