Download Tax Base and Revenue Forecasting

Tax Base and Revenue
Forecasting
Tuan Minh Le
Presented at Workshop on Public Finance
Management in Bhutan
Washington D.C., August 16-20
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Purpose
• For budgeting.
• For automated establishment of tasks for
collection of taxes.
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Tax Base and Revenue Forecasting
Models
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Macro-based modeling
Micro simulation
Monthly tax receipts modeling
Input-output approach
Aggregate national account approach
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Macro-based modeling
Basic data requirements
•Tax collection.
•GDP.
•GDP deflator.
Relied on basic regression specifications. E.g.,
LnT = a + bLnGDP + e
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Micro simulation
•To forecast tax revenue, and
•To assess impact of policy changes.
An example (personal income tax)
Basic data requirements:
•Individual or family-based annual income tax returns.
•Household surveys to cover non-filers.
•CPI, growth rates of population, GDP, and investment.
•PIT codes.
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Micro Simulation--Steps
Step 1: Sample design and database construction
•Sampling (e.g., stratified: Strata established on basis of
income sources, place of residence, income level etc.)
•Data cleaning and sample weight (idea: distribution of
samples compared with the one for whole population).
•Data aging. Forecasting of growth factors; e.g., population,
GDP, investment etc.
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Micro Simulation--Steps
Step 2: Construction of typical taxpayer tax calculator
model
Typically three components:
•Personal income tax parameters.
•Taxpayer personal information.
•Tax calculator module.
Step 3. Construction of aggregate tax calculator model
and impact distribution analysis
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Monthly tax receipts modeling
Basic data requirements:
•actual monthly receipts.
•projected GDP growth or other tax base proxies.
Ti , y
Where,
Ta , y


  i,y
Ta , y 1  1     

 a , y 1

1




m
 m

T

T
  a , y  a , y 1 

    g  1      a 1 m a 1


T

a , y 1


a 1
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Input-output modeling (typical for
VAT model)
Basic data requirements:
•Input – Output Table.
•Household Expenditure Survey.
•Government expenditure.
•VAT code.
Step 1: Construct and estimate VAT base
Step 2: Estimate VAT collection taking into account
compliance rate
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Aggregate national account modeling
Data requirements:
•GDP at market price and its components; e.g., private cons.,
government cons. (wage and non-wage government
expenditures), investment, and trade balance.
•VAT code.
•Foreign expenditures in domestic market and expenditures
abroad by residents
•Value added of exempt sector.
•Output purchased by taxed sector from exempt sectors.
•Input purchased by exempt sectors.
•Values of goods and services provided by zero-rated sectors.
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Aggregate national account modeling
GDP  C  I  Gc  Gw  ( X  M )
VAT base (prior to further adjustments):
C  Gc  GDP  ( X  M )  I  Gw
* For framework of estimation, see Zee, “Value-Added Tax,” in
Tax Policy Handbook, Shome, ed., IMF 1995.
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