Regional Government Revenue Forecasting: Risk Factors of Investment Financing

Barbara Batóg,Jacek Batóg

doi:10.3390/risks9120210

Abstract

Accurate revenue prediction is a key factor for the reliable determination of the investment part of entire regional and local budgets, particularly during economic downturns and fiscal uncertainty. An unexpected decline in revenue requires the reduction in capital expenditures and forces the regional government to find additional sources to close the budget gaps. Current studies indicate that budget forecasts often underpredict revenue and use the available information inefficiently. In this article, the authors examine chosen methods of forecasting regional government revenue. In addition to classical forecasting models based on time series and causal models, an original structural forecasting procedure was proposed, which is effective especially in case of data delay. The reliability of applied methods was assessed using data from the Polish area of Zachodniopomorskie over the period 2000–2018. The found evidence supported results that were obtained by many other researchers, which indicated that less comprehensive methods of forecasting can provide reasonably accurate estimates.

Highlights

A large number of studies provide arguments in favour of obtaining better prediction results in the case of determining forecasts for single objects. Noteworthy among these are the results presented in the works of Zellner and Tobias (2000), Marcellino et al (2003) and Demers and Dupuis (2005), which forecast, respectively, the average gross domestic product (GDP) growth rate for 18 industrialized countries, revenue and prices in the euro area and regional GDP growth in Canada
In Poland the total revenue of local governments consists of own revenue, general subsidy and special purpose grants
The share of local governments in personal income tax (PIT) and corporate income tax (CIT) tax revenue plays an important role in shaping their own revenue

Summary

Introduction

The level of revenue in local government units depends, among other things, on the changes in the economic condition, the level of the inflow of external funds, the employment rate, the labour productivity, the level and quality of human capital, the functioning of the institutional environment and the effectiveness of the implemented economic and social policies (OECD 2009). This revenue is characterized by a certain degree of variability, which depends primarily on unexpected changes in economic activity, policy and administrative adjustments, or changing patterns of consumer demand (Freire and Garzon 2014). Additional uncertainty of future revenue of administrative units is created since the regional tax structure itself may be changed (Feenberg et al 1989)

Objectives

Methods

Results

Conclusion