Fiscal Revenue Volatility and Concentration as Drivers of Budgetary Risk: Evidence from the Republic of Moldova (2005–2024)

Abstract

This study explores whether fiscal revenue volatility and the concentration of revenue sources contribute to budgetary risk in the Republic of Moldova over the period 2005–2024. The issue is particularly relevant for small open economies, where external shocks, shifts in tax structure, and limited revenue diversification may affect the stability of budget execution. Against this background, the article assesses the extent to which fluctuations in fiscal revenues and their concentration across a narrow set of categories are associated with deviations between planned and executed deficit outcomes. The analysis draws on annual State Budget data for 2005–2024 and uses additional information from Ministry of Finance reports, approved budget laws, IMF Government Finance Statistics, Court of Accounts reports, and National Bureau of Statistics GDP series. Revenue volatility is captured through a rolling three-year standard deviation of log revenue growth, while revenue concentration is measured by the Herfindahl–Hirschman Index calculated across seven revenue categories. Budgetary risk is proxied by deficit execution deviations expressed as a share of GDP. The empirical approach combines descriptive statistics and correlation analysis with OLS estimations using Newey–West heteroskedasticity and autocorrelation consistent standard errors. The results suggest that revenue volatility is positively associated with deficit execution deviations in the baseline specifications. By contrast, revenue concentration does not display the expected positive effect; in multivariate models, its coefficient is negative and statistically significant. The interaction between volatility and concentration remains positive, although this result is not robust across all specifications. Taken together, the findings suggest that revenue diversification alone is unlikely to reduce budgetary risk without stronger medium-term fiscal planning and more consistent revenue forecasting practices. UDC: 336.2:338.12”2005/2024”(478); JEL: H62, H20, E62, H11