Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/196138
Authors: 
Ademmer, Martin
Boysen-Hogrefe, Jens
Year of Publication: 
2019
Series/Report no.: 
Kiel Working Paper 2123
Abstract: 
We investigate the impact of errors in medium run tax revenue forecasts on the final budget balance. Our analysis is based on fiscal data for the entirety of German states and takes advantage of revenue forecasts and respective errors that can be considered as exogenously given in the budgeting process. We find that forecast errors at various forecast horizons translate considerably into the final budget balance, indicating that expenditure plans get only marginally adjusted when revenue forecasts get revised. Consequently, the accuracy of medium run forecasts considerably affects the sustainability of public finances. Our calculations suggest that a significant share of total debt of German states results from revenue forecasts that were too optimistic.
Subjects: 
fiscal policy
fiscal planning
medium run forecasting
budget balance
public debt
JEL: 
E62
H61
H68
Document Type: 
Working Paper
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