International Tax and Public Finance

, Volume 17, Issue 2, pp 133–150 | Cite as

The political economy of tax projections



This paper addresses the political economy of tax projections. It argues that governments face incentives to present upward biased tax projections. In election years, this may help them to increase the chance of reelection. If this chance is low, biased tax projections help governments to bring forward favorable expenditures and to burden their successors. These hypotheses are tested using West German states between 1992 and 2002. While there is only weak support for a general upward bias in tax projection and the importance of elections and partisanship, the degree of overestimation is found to be significantly higher, the less popular the incumbent party is and the poorer the state-specific economic performance.


Tax projections Political parties Budget process Public deficits Fiscal discipline Fiscal transparency 

JEL Classification

H 72 D 72 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Alesina, A., & Perotti, R. (1996). Fiscal discipline and the budget process. American Economic Review, 86(2), 401–407. Google Scholar
  2. Alt, J. E., & Lassen, D. D. (2006). Fiscal transparency, political parties, and debt in OECD countries. European Economic Review, 50, 1403–1439. CrossRefGoogle Scholar
  3. Auerbach, A. J. (1996). Dynamic revenue estimation. Journal of Economic Perspectives, 10, 141–157. Google Scholar
  4. Auerbach, A. J. (1999). On the performance and use of government revenue forecasts. National Tax Journal, 52, 762–782. Google Scholar
  5. Besley, T., & Case, A. C. (1995). Does electoral accountability affect economic policy choices? Evidence from gubernatorial term limits. Quarterly Journal of Economics, 110, 769–798. CrossRefGoogle Scholar
  6. Bischoff, I. (2005). Electoral competition in a multidimensional political arena—parallel moves instead of convergence in policy platforms. Public Choice, 122, 221–243. CrossRefGoogle Scholar
  7. Brück, T., & Stephan, A. (2006). Do Eurozone countries cheat with their budget deficit forecasts? Kyklos, 59, 3–15. CrossRefGoogle Scholar
  8. Bundesministerium der Finanzen (2007). Arbeitskreis “Steuerschätzungen”. Accessed 6 September 2007.
  9. Burkhart, S. (2004). Parteipolitikverflechtung: Der Einfluss der Bundespolitik auf Landtagswahlentscheidungen von 1976 bis 2002. MPIfG Discussion Paper 04/1 Max-Planck-Institut für Gesellschaftsforschung Köln. Google Scholar
  10. Deutsche Bundesbank (2005). Defizitbegrenzende Haushaltsregeln und nationaler Stabilitätspakt in Deutschland (pp. 23–32). Monatsbericht April 2005. Google Scholar
  11. Franzese, R. J. (2002). Electoral and partisan cycles in economic policies and outcomes. Annual Review of Political Science, 5, 369–421. CrossRefGoogle Scholar
  12. Frey, B. S., & Pommerehne, W. W. (1982). How powerful are public bureaucrats as voters? Public Choice, 38, 253–262. CrossRefGoogle Scholar
  13. Galli, E., & Rossi, S. P. S. (2002). Political business cycles: the case of the Western German Länder. Public Choice, 110, 283–303. CrossRefGoogle Scholar
  14. Gandenberger, O. (2004). Supranationale Regeln zur Sicherung finanzpolitischer Disziplin. In G. Milbrat & I. Deubel (Eds.), Ordnungspolitische Beiträge zur Finanz- und Wirtschaftspolitik (pp. 45–64). Berlin: Duncker und Humblot. Google Scholar
  15. Gebhardt, H. (2001). Methoden, Probleme und Ergebnisse der Steuerschätzung. RWI-Mitteilungen, 52, 127–147. Google Scholar
  16. Grossman, P. J. (1994). A political theory in intergovernmental grants. Public Choice, 78(3–4), 295–303. CrossRefGoogle Scholar
  17. Grossman, G. M., & Helpman, E. (1996). Electoral competition and special interest politics. Review of Economic Studies, 63, 265–286. CrossRefGoogle Scholar
  18. Heinemann, F. (2006). Planning or propaganda? An evaluation of Germany’s medium-term budgetary planning. Finanzarchiv, 62, 1–28. CrossRefGoogle Scholar
  19. Hettich, W., & Winer, S. L. (1997). The political economy of taxation. In D. C. Mueller (Ed.), Perspectives on public choice (pp. 481–505). Cambridge: Cambridge University Press. Google Scholar
  20. Hibbs, D. A. (1977). Political parties and macroeconomic policy. American Political Science Review, LXXI, 1467–1487. Google Scholar
  21. Huber, G., Kocher, M., & Sutter, M. (2003). Government strength, power dispersion in goverments and budget deficits in OECD-countries. A voting power approach. Public Choice, 116, 333–350. CrossRefGoogle Scholar
  22. Korthals, G. (2002). Perspektiven für eine wirksamere öffentliche Finanzkontrolle. Die Öffentliche Verwaltung, 55, 600–607. Google Scholar
  23. McNab, R. M., Rider, M., & Wall, K. D. (2007). Are errors in official US budget receipts forecasts just noise? Andrew Young School of Policy Studies Working Paper 07-22. Google Scholar
  24. Mueller, D. C. (2003). Public choice III. Cambridge: Cambridge University Press. Google Scholar
  25. Nannenstad, P., & Paldam, M. (1994). The V-P function—a survey of the literature on vote and popularity functions after 25 years. Public Choice, 79(3–4), 213–245. CrossRefGoogle Scholar
  26. Persson, T., & Svensson, L. E. O. (1989). Why a stubborn conservative would run a deficit: policy with time-inconsistent preferences. Quarterly Journal of Economics, 104, 325–345. CrossRefGoogle Scholar
  27. Persson, T., & Tabellini, G. (1997). Political economy and macroeconomic policy. NBER Working Paper no. 6329. Google Scholar
  28. Pettersson-Lidblom, P. (2001). An empirical investigation of the strategic use of debt. Journal of Political Economy, 109, 570–583. CrossRefGoogle Scholar
  29. Potters, J., & Sloof, R. (1996). Interest groups: a survey of empirical models that try to assess their influence. European Journal of Political Economy, 12, 403–443. CrossRefGoogle Scholar
  30. Rogoff, K. (1990). Equilibrium political budget cycles. American Economic Review, 80, 21–36. Google Scholar
  31. Roubini, N., & Sachs, J. (1989). Political and economic determinants of budget deficits in industrialized democracies. European Economic Review, 33, 903–933. CrossRefGoogle Scholar
  32. Schulze-Steikow, R. (1996). Finanzplanung von Bund und Ländern 1995 bis 1999. Wirtschaft und Statistik, 2, 120–125. Google Scholar
  33. Seitz, H. (2000). Fiscal policy, deficits and politics of subnational governments: The case of the German Laender. Public Choice, 102, 193–218. CrossRefGoogle Scholar
  34. Sutter, M. (2003). The political economy of fiscal policy: an experimental study on the strategic use of deficits. Public Choice, 116, 313–332. CrossRefGoogle Scholar
  35. Tabellini, G., & Alesina, A. (1990). Voting on the budget deficit. American Economic Review, 80, 37–49. Google Scholar
  36. Van Dalen, H. P., & Swank, O. H. (1996). Government spending cycles: ideological or opportunistic. Public Choice, 89, 183–200. CrossRefGoogle Scholar
  37. Volkerink, B., & de Haan, J. (2001). Fragmented government effects on fiscal policy: new evidence. Public Choice, 109, 221–242. CrossRefGoogle Scholar
  38. Von der Lippe, P. (1986). Steuerschätzungen und ihre wirtschaftspolitische Bedeutung. Steuer und Studium Heft, 11, 334–340. Google Scholar
  39. Von der Lippe, P. (1998). Steuerschätzung: Probleme, Methoden, Ergebnisse. Steuern und Studium Heft, 5, 217–223. Google Scholar
  40. Von Hagen, J., & Harden, I. (1994). National budget processes and fiscal performance in the European Communities. European Economy, Reports and Studies, 3, 311–418. Google Scholar

Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  1. 1.Centre for European Economic Research (ZEW)MannheimGermany
  2. 2.Department of EconomicsUniversity of GiessenGiessenGermany
  3. 3.Fakultät TechnicHochschule PforzheimPforzheimGermany

Personalised recommendations