Topic: Personal Income T and Revenue Forecasting
Assignment 5: Personal Income Tax and Revenue Forecasting
**Review Exercise 6 at the end of Chapter 12, “Revenue Forecasts, Revenue Estimates, and Tax Expenditure Budgets”. Write a
3-4 page paper
1. Describe a pattern you see in the tax collection data given for the case.
2. Explain with examples whether you know enough to advise the ministry whether or not to revise their 2001 forecast.
3. Based on the data given, determine how much tax revenue do you predict will be collected in May of 2001. Explain your reasoning.When the Soviet bloc broke up in the early 1990’s, the Republic of Vadar declared its independence. As the country established a monetary system, democratic process, and a controlled fiscal system, the early problems of hyperinflation, unemployment, and declining standards of living slowly subsided. In late 1997 the country initiated a personal income tax, heavily dependent on taxes withheld by large employers on wages and salaries, but still broad in coverage. The country has
been collecting about 30% of its tax revenue from the tax, although a law passed in 2000 is expected to reduce personal
income tax collections by 25% in the short term. The lower tax rates are expected to stimulate economic activity and to
encourage business to move from the shadow to the official (taxpaying) economy, so some of the revenue loss will ultimately
be recovered. The Ministry of Finance forecasts collections of $7,789,000.00 thousand markka (MK) for 2001. Data on tax
collections:
Month 1998 1999 2000 2001
January 668,534.0 625,149.1 559,070.9 714,981.0
February 782,026.6 754,396.9 874,000.0 575,115.0
March 738,856.7 811,506.7 988,047.2 583,592.0
April 826,622.9 880,075.8 916,030.7
May 678,031.1 756,507.9 800,876.8
June 736,974.5 831,054.5 940,975.1
July 824,343.7 978,486.6 967,098.4
August 668,708.8 743,718.4 841,267.5
September 766,271.3 898,210.0 874,308.1
October 759,679.8 846,494.2 887,091.4
November 742,371.5 847,950.2 936,090.7
December 984,911.2 1,259,467.1 1,204,961.7
a. From this information, would you advise the ministry to revise its 2001 forecast? Explain.
b. What factors may influence the patterns you see in the data?
c. What other issues would you pursue in addition to the data presented here? Collections are in MK thousand.
Mikesell, J.L. (2010). Fiscal Administration. Analysis and Applications for the Public Sector.
8th Ed., Wadsworth: Cenage Learning