Forecasting tax revenue

1
Forecasting tax revenue

• When
• When, why and for whom do we make forecasts?
• What
• What do we make forecasts of?
• How
• How do we make forecasts?

2
When, why and for whom do we make tax forecasts?

• Short term forecasts
• Quarterly economic outlook
• Budget cycle
• Shadow budgets
• Medium term forecasts
• Baseline
• Election platforms
• Coalition agreement
• Policy preparation, analysis and research

3
What do we forecast?

• General government
• Central government taxes
• Social security contributions
• Local taxes
• But not non-tax revenue
• Accrual, EMU and cash basis
• Economic classification vs. policy relevance
• Policy effects vs. endogenous change

4
Tax revenue forecast
MEV 2005, September 2004
5
How do we make tax forecasts?

• Dedicated models
• MOSI Wage and income tax, social security
• contributions
• BIMBAM VAT, corporation tax, rest
• Expert intervention
• Monthly revenues from tax authorities
• Other information on the budget implementation
• Exchanges with MoF

6
The tax monitor
Monthly receipts and Sept. forecast 2004, EMU
def., bn euro
Idem, cumulative
7
The forecasting process
R.O.W.
Energy
Labour market
Construction
Macroeconomic model
Govt spending
Incomes and prices
Tax revenue
Health care
Social security
8
BIMBAM

• BIM Tax information model
• Simultaneous equation model
• What if model
• Simple macro forecasting rules
• Many taxes
• Many aspects
• Large, detailed model
• BAM
• Spreadsheet
• Accounting and classification of tax policy and
  expert adjustments
• Effect on revenue exported to BIM

9
A macro forecasting rule
10
VAT

• Forecasting model VAT is more involved
• VAT forecast per category
• Private consumption (9 categories)
• Investment (housing and the rest)
• Intermediate goods and services
• Per category shares of zero tariff, reduced
  tariff and general tariff
• Expert adjustment and policy effects at aggregate
  level or at category level

11
VAT forecast record 2001-4
Level, GDP
Annual change, GDP
12
Corporation tax

• Same principle
• Endogenous growth (much) more involved due to
• Economic vs. tax definition of profit
• Carry back/forward of losses
• Assessment process
• Not particular accurate ? revision?

13
Corporation tax forecast record 2001-4
Level, GDP
Annual change, GDP
14
MOSI

• Model Of Social Insurance
• Results at macro level
• using microsimulation.
• Income Panel Survey
• Account of income tax system at personal level
• Effects of income distribution

15
MOSIs structure
Existing macro- dataset
Changes
Existing micro- dataset
Macromodel
Micromodel
New macro- dataset
New micro- dataset
16
New developments in microsimulation

• New microdata (IPO 2001/2?)
• New income tax system
• Integration with other microsimulation models
• Development of new instrument