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

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