Forecasting Tax Revenue in the Netherland

5/25/2018 Forecasting Tax Revenue in the Netherland

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Forecasting tax revenuesin the Netherlands

Eugene Verkade ([email protected])

Seminar on Best Practices

in Forecasting Public Revenues

Statec , 27 January 2012


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CPB Netherlands Bureau for Economic Policy Analysis

Overview

The macro economic forecasting process (at CPB)

The role of estimating Dutch tax revenues

Actual process of tax revenue forecastingBIMBAM-model approach

use of expert opinion

use of realization figures

Summary and conclusions

27 January 20122 Forecasting Dutch tax revenues


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Macro economic forecasts, when, why and for whom?

Short-term forecasts (1-2 years ahead)

Four times a year

budget cycle (for next years policy changes)

Medium-term forecasts (4 to 5 years ahead) Medium-term economic outlook

Election platforms

Coalition agreement

Policy preparation, analysis and research

Note : CPB provides independent forecasts and policy research



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Economic Forecasting. an interactive estimation process

Macroeconomic

model

Labour

market

Incomes

and prices

Taxrevenue

Social

security

Health

care

Rest ofthe World

Govt

spending

Construction

Energy


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Modelling tax revenues

National Accounts definition (EMU) vs. Ministry of Finance defintion

Economic relevance vs. policy relevance

Policy effects vs. endogenous effects

CPB uses 2 models :

MIMOSI : wage and income tax , social security contributionsBIMBAM : all other taxes



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Overview main tax categories (NA value)2010

bln euro % GDP

2010

bln euro % GDP

Value added tax 42.7 7.2% Dividend tax 3.1 0.5%

Wage tax 46.1 7.8% Import duties 1.8 0.3%

Corporate tax 12.8 2.2% Income tax 2.1 0.4%

Excises 11.1 1.9% Inheritance tax 1.7 0.3%

Environmental levies 8.5 1.4% Wealth tax 0.0 0.0%

Motor vehicle tax 5.2 0.9% Insurance tax 0.9 0.1%

Motor vehicle purchase tax 2.1 0.4% Other taxes 2.1 0.4%

Conveyance tax 2.8 0.5%

Real estate property tax 3.0 0.5% Total tax revenues 146.0 24.8%



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0 %

5 %

1 0 %

1 5 %

2 0 %

2 5 %

3 0 %

3 5 %

4 0 %

4 5 %

5 0 %

1 9 7 0 1 9 8 0 1 9 9 0 2 0 0 0 2 0 1 0

% G D P

y e a r

S h a r e o f t a x e s a n d s o c i a l s e c u r i t y c o n t r i b u t i o n s i n G D P

T o t a l t a x e s

T o t a l s o c i a l s e c u r i t y c o n t r i b u t i o n s

T o t a l t a x e s + s s c


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0 %

2 %

4 %

6 %

8 %

1 0 %

1 2 %

1 9 7 0 1 9 8 0 1 9 9 0 2 0 0 0 2 0 1 0

% o f G D P

y e a r

Tax share in GDPw a g e a n d i n c o m e t a x e s

V A T

c o r p o r a t e t a x e s

o t h e r t a x e s


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Forecasting process

1. List all new budgetary policy measures (in

close cooperation with the Ministry of Finance)2. Estimate the ex ante impact of each measure (model input)

3. Collect latest monthly tax data

4. Bring in the most recent macro economic forecast

5. Estimating future tax revenues following these latest forecast (modelrun)

6. Expert judgement on model outcomes

7. Results go back to macro model

step 4-7 will be repeated during several rounds



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Forecast tax revenue per category

revenue (T-1)+ (a) policy effect ( exogenous in mln )

+ (b) endogenous effect ( endogenous )

+ (c) adjustment ( exogenous in mln )

+ (d) forecast error (for the past) ( if relevant )_________________

= revenue (T)

hence : (a) crucial expert judgement, determined outside model

(b) guarantees consistency with latest economic forecast

(c) and (d) only if necessary



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Modelling the endogenous effect

VAT : linked to disaggregated demand(private consumption by sector, investment, etc)

income tax : MIMOSI model (next slide)

corporate tax : rather problematic , highly relevant

(related to non wage income , but impact of loss compensation)

most other taxes : most linked to overall GDP growth

(ex post adjustment)



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The MIMOSI model

to calculate wage and income tax and for social security contributions

based on micro data base

overview of taxable income on households, major items on deduction

pure bookkeeping model

(behavioral reactions come from macro models)



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Monthly monitor

Tax authorities provides monthly cash figures up to previous month

These monthly figures are highly volatile(unclear seasonal pattern)

Therefore, additional information with limited impact on year forecast

NA figures follow cash figures with one month lag for most taxes(for some taxes no lag)



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Summary and conclusions

BIMBAM is a rather large, detailed model with many different taxes

included. but only a few really matter for budget balance

Distinction between policy effects and endogenous effect useful for policymaking process

Quality of forecasts depend on the quality and suitability of inputs

Forecasting corporate tax remains a challenge

Estimating is not a mechanical process: important role for plausibilitychecks



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Thank you for your attention


Forecasting Tax Revenue in the Netherland

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