Revised article published in Tax Modeling for Economies in Transition, OECD: Macmillan (1998).
Quantitative analysis is a key aspect of the design and evaluation of tax policy. To make informed decisions, policymakers should know how much revenue is collected and from whom. The tax reform planned for transition economies should include the introduction not only of new tax structures but also of new models to estimate revenues. Preliminary methodologies can be developed in time to influence the current discussions on the design of tax legislation. These efforts will also lay the groundwork for the further development of data bases and models that will be used to evaluate tax policy in the years ahead.
This paper provides an introduction to quantitative techniques for analyzing tax reforms. Section I discusses three interrelated functions of tax analysis departments. These functions are (1) forecasting tax receipts, (2) estimating revenues resulting from changes in tax laws, and (3) analyzing the economic effects of tax laws. Section II lays out a general conceptual framework for preparing these analyses. Section III presents examples of relatively simple techniques for forecasting, estimation, and analysis for a value-added tax. Section IV offers conclusions.