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Revenue Forecasting

Revenue Forecasting. Estimating & Tax Expenditure Budgets. Revenue Forecasts. A.K.A. baselines Used to forecast revenue collections in a fiscal year (or other budget period) Assume no changes in tax policies. Considerations . Precision/accuracy Conservatism Generalizability

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Revenue Forecasting

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  1. Revenue Forecasting Estimating & Tax Expenditure Budgets

  2. Revenue Forecasts • A.K.A. baselines • Used to forecast revenue collections in a fiscal year (or other budget period) • Assume no changes in tax policies

  3. Considerations • Precision/accuracy • Conservatism • Generalizability • Ease of computation

  4. Considerations, cont. • Time frame (short-term projections are more likely to be accurate, long term projections require simpler methods due to the imprecision inherent in them) • Tenable assumptions

  5. Methods: Projections & Extrapolations • A.K.A. “deterministic models” • Examples • Moving averages • Simple regression (with time as independent variable)

  6. Methods: Multiple Regression • Assume that revenue is a function of the independent variables • Selection of independent variables is important

  7. Other Methods • Econometric models • Simulations

  8. Estimating • Predicts the effects of changes in tax laws &/or tax administration procedures • Methods differ in terms of assumptions re. changes in taxpayer, etc. behavior as a result of the new laws • Static • Dynamic

  9. Tax Expenditure Budgeting • Calculates revenue losses due to policy decisions re. deductions, exemptions, abatements, etc. • “Benchmark” budget is what revenues would be without policy-based erosion

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