Dynamic scoring of tax reforms in real time
JRC Working Papers on Taxation and Structural Reforms No 14/2022
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.
BARRIOS Salvador;
REUT Adriana;
RISCADO Sara;
VAN DER WIELEN Wouter;
Barrios, S., Reut, A., Riscado, S. and Van Der Wielen, W., Dynamic scoring of tax reforms in real time, European Commission, 2022, JRC132068.
2022-12-16
European Commission
JRC132068
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