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REVENUE FORCASTING WITH AGGREGATE APPROACH

DANG, Ngoc Tu; TRUONG, Ba Tuan; VU, Huyen Trang; HOANG, Minh Hao
National Institute for Finance, Vietnam Ministry of Finance
June 27, 2011

1. Method for forecasting revenue

The method is the aggregate approach which uses the national account to
define the tax base. As proposed by Jenkins, Kuo et al. (2000), we forecast the tax
revenue based on the following simple equation: log = + log in which, tax revenues in year , is the tax base in year , and are
coefficients to be estimated. We use dummies to proxy changes in tax policies. The
dummies are applied for both slope and constant. In the case of auto-correlation,
we use Cochrane-Orcutt estimation.
The coefficient δ is the elasticity of the tax revenues with respect to its base: =ΔΔTY⁄⁄TY =%%TY The tax revenue for year +1is forecasted by the following formula: T =T(1+%Y δ) Following the aggregate approach, tax base is determined quite simply. In the rest
of this section, we explain the base for each tax.