Evaluating rationality of level and growth rate forecasts of direct tax revenues under flexible loss function: Evidence from Swiss cantons

• We study the rationality of direct tax revenue forecasts under asymmetric loss.
• We use long time series for the 26 Swiss cantons.
• We find asymmetric losses for level forecasts but not for growth rates.
• Allowing for asymmetric losses alters the outcome of rationality tests.

We explore the rationality of tax revenue forecasts in Swiss cantons under asymmetric loss functions. We find evidence of asymmetric losses for the level forecasts but not for growth rates. Allowing for asymmetric losses alters the outcome of rationality tests for the level forecasts.