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Dynamic scoring of tax reforms in real time

Salvador Barrios (), Adriana Reut, Sara Riscado and Wouter van der Wielen ()
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Salvador Barrios: European Commission - JRC,

No 2022-14, JRC Working Papers on Taxation & Structural Reforms from Joint Research Centre (Seville site)

Abstract: In this paper, we propose a novel approach for the ex-ante assessment of tax reforms accounting for second-round effects, i.e. the dynamic scoring of tax reforms. We combine a microsimulation model for selected European countries with VAR estimates of macro responses and, exploiting a unique database of tax reforms in the EU, compare our estimates with the real-time assessment of tax reforms conducted by the EU Member States as well as with ex-post realisations. This is the first time dynamic scoring of tax reforms is conducted in real-time and compared to ex-post realizations in a systematic way. The novelty of our approach hinges on the use of a macro-econometric model combined with a microsimulation model which represents a more flexible tool than (computable) general equilibrium models in order to conduct real-time dynamic scoring analysis. Our results suggest that on average personal income tax cuts resulted in medium-term increases in output and employment; however, the second-round revenue impact is found to be small relative to the first-round microsimulation results.

Keywords: Fiscal policy; tax reforms; real-time; microsimulation; EUROMOD; VAR models (search for similar items in EconPapers)
Date: 2022-12
New Economics Papers: this item is included in nep-cmp, nep-eec, nep-pbe and nep-pub
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Handle: RePEc:ipt:taxref:202214