Fiscal Revenue Analysis and Forecasting

Fiscal Revenue
Analysis and
Forecasting
Dr. João Tovar Jalles (PhD)
University of Lisbon (Portugal)
DAY 1 – 14th of August 2023
1
Briefly about myself…
Education Research Interests
o BSc in Economics- Nova SBE Universidade Nova Lisboa o applied macroeconometrics
o MSc in Economics – Warwick University o fiscal policy and public finance
o PhD in Economics – University of Cambridge o structural reforms
o assessment of forecasting performance
Main Institutional Professional Experience o macro-financial linkages
o IMF, Fiscal Affairs Department & Research Department o energy economics
o OECD, Economics Department
o ECB, DG Economics, Fiscal Policies Division Output
o Portuguese Public Finance Council
o among the top 1% economic authors in the World and top 1%
economic authors in Portugal based on IDEAS database (the
Academic Professional Experience largest bibliographic database dedicated to Economics).
o University of Lisbon, ISEG o He has written extensively having published more than 140
o Nova SBE Universidade Nova Lisboa academic papers in refereed journals.
o University of Cambridge, Faculty of Economics
o University of Aberdeen, Business School
o Sciences Po, Paris School of International Affairs
Course´s Schedule and Key Content
DAY 1
• Fiscal Revenue Analysis
8:00 to 8:30 AM Assembly and Arrival of Participants
8:30 to 9:00 AM Registration of Participants and other Preliminary
• Fiscal Revenue Forecasting
Activities • Revenue Elasticities and Structural Balances
9:00 to 9:30 AM Opening Program
9:30 to 12:00 NN
12:00 to 1:30 PM
Day 1, Morning Session
Lunch Break and Dhuhur Prayer
Total of 10h
1:30 to 4:00 PM Day 2, Afternoon Session
including
DAY 2 • Case study analysis
8:00 to 8:30 AM Assembly and Arrival of Participants • Group sessions
8:30 to 9:00 AM Registration of Participants and other Preliminary • Identification of current trends and challenges
Activities
9:00 to 12:00 NN Day 2, Morning Session • Discussion of possible solutions
12:00 to 1:30 PM Lunch Break and Dhuhur Prayer • Hands on empirical examples (with academic
1:30 to 3:30 PM Day 2, Afternoon Session
3:30 to 4:00 PM Closing Program papers/studies)
• General Q&A
Manila, Philippines, August 12-14, 2023 3

Day 1
Fiscal Revenue Analysis
1. Introduction to Fiscal Revenue Analysis
2. Taxation Principles and Concepts
3. Tax Policy Analysis
4. Non-Tax Revenue Analysis
5. Fiscal Federalism and Revenue Sharing
6. Tax Compliance and Enforcement
7. Revenue Forecasting and Budgeting
8. International Aspects of Fiscal Revenue Analysis
9. Case Studies
10. Emerging Trends and Future Outlook
Group Session
4
Day 2
Fiscal Revenue Foreasting, Revenue Elasticities and
Structural Balances
Fiscal Revenue Forecasting Revenue Elasticities and Structural
1. Introduction to Fiscal Revenue Forecasting
2. Data Collection and Analysis for Revenue Forecasting Balances
3. Time Series Forecasting Techniques 1. What are Revenue Elasticities?
4. Regression Analysis for Revenue Forecasting 2. Types of Revenue Elasticities
5. Advanced Forecasting Techniques 3. Importance of Revenue Elasticities
6. Budgeting and Decision-Making with Revenue Forecasts 4. Calculating Revenue Elasticities
7. Dealing with Uncertainty and Risk in Revenue 5. Advantages of Revenue Elasticities
Forecasting
6. Limitations and Considerations
8. Forecast Evaluation and Model Updating
7. Applying Revenue Elasticities in Budget
9. Case Studies in Fiscal Revenue Forecasting
10. Emerging Trends and Innovations in Fiscal Revenue Formulation
Forecasting 8. Implementing Revenue Elasticity-Informed Policies
Group Session Group Session
5
Introduction to
Public Finance
6
Introduction to Public Finance – a primer
• What’s in a name?
• – “Political economy” (18th c.)
• – “Public finance” (19th c.)
• – “Public economics” (1960s)
• Public finance vs public economics:

• – In the U.S., still “public finance”, but very different from French “finances
publiques”;
• – Public economics is about the economics of the public sector (cf. German
“Staatswirtschaft”).
7
(cont.)
8
(cont.)
• 1. Relevance
o Public economics is about improving economic welfare;
o Public economics is about good government;
o Public policies affect millions of people.
• 2. A dynamic academic field

o At the frontier in applied microeconomics : cf. “credibility revolution” (Angrist
and Pischke, 2010);
o Tight integration of theory and data;
o Large use of big data;
o Strong interactions with other fields: labour, behavioural economics, I.O.,
macro, etc.
9
Introduction to Public Finance – normative
vs positive principles
•Positive Analysis:
•Explain what exists and forecast its consequences in certain identifiable “objective” variables, either
instrumental or structural.
1. Which are the effects of manipulating certain fiscal policy variables pursuing public finance objectives?
2. Which are the effects of changing structural variables in order to implement public policies?
•Normative analysis: Ascertaining “social states”, i.e., making “normative” value judgments in terms of how
things should be, in particular issues surrounding: current state of affairs & the implementation of public
policy, and its evaluation according to normative criteria (efficiency and equity).
1. To what extent should the government get involved in the economy in terms of public expenditure and
revenues?
2. Which public sector instruments (rules and institutions) should be put in place in order to formulate, adopt
and implement public policies?
10
The Allegory and Effects of Good Government
The Allegory and Effects of Good Government
11
Introduction to Public Finance – the role of
governments
•Governments exist to provide public goods, address externalities, deal with imperfect
information and other market failures (Grossman, 1988).
•Fiscal policy is the key governments’ instrument:

•Governments employs resources in different activities: what areas and programmes (health, education,
infrastructure, social programmes); how to prioritise? how to ensure money are spent effectively?
•Governments’ activities need resources (i.e. from taxation and debt); how to raise these resources? what taxes?
what is the role of public debt?
•Governments (i.e. role of the state in the economy) can be large or small:
•in principle, the size of the government depends on the contribution of each (expenditure) component to growth
(Devarajan et al., 1996);
•in practice, the answer is more complicated (other factors may affect government actions, in addition to growth,
such redistribution, resilience and security, environmental protection…).
12
Introduction to Public Finance – key components
of fiscal policy for economic development
• Domestic resource mobilization through:
–Tax system and tax administration reform;
– Broadening tax bases;
–Improving efficiency of tax administration through training and retraining;

–Tightening regulation on tax heavens.
• Composition and quality of expenditure:

Greater budgetary allocation to:
– Human capital: education; health; social safety nets; skill developments;
– Physical infrastructure: roads and highways, communication, energy.
Both directly affect economic growth but the quality aspect (and degree of efficiency) also matters.
13
Main readings on Public Finance
▪ STIGLITZ, Joseph, 2000; “Economics of the Public Sector”; 3rd Edition,
W.W. Norton & Company, ISBN: 9780393966510
▪ ROSEN, Harvey, 2008; “Public Finance”; 5th Edition, McGraw-Hill, USA.
▪ MUSGRAVE, Richard, MUSGRAVE, Peggy, 1989; “Public Finance in Theory

and Practice”; 6th Edition, originally published in 1959; McGraw-Hill, USA.
▪ CULLIS, John, JONES, Philip, 1998; “Public Finance and Public Choice”; 2nd
Edition, 1st Edition in 1992, Oxford University Press, UK.
14
Fiscal Revenue Analysis
15
1.Introduction to
Fiscal Revenue
Analysis
16
Overview of Fiscal Revenue
Introduction
• Fiscal revenue - the total income collected by the government
through various sources to finance public expenditures.
• It is a crucial component of public finance, enabling the government

to provide essential services and public goods, undertake
infrastructure projects, and implement social welfare programs.
• Without adequate revenue, the government may struggle to meet its

financial obligations and fulfil its responsibilities to the citizens.
17
Importance in Public Finance
1. Fiscal revenue >>> central role in the functioning of the government and
the economy as a whole.
2. It serves as the primary source of funding for public goods and services,
including education, healthcare, public safety, and infrastructure
development.
3. Fiscal revenue influences the government's ability to pursue economic

stabilization policies, support economic growth, and manage public debt.
4. Fiscal revenue collection and expenditure are integral to achieving fiscal

sustainability and maintaining macroeconomic stability.
18
Role in Economic Growth and Stability
• Fiscal revenue >>> direct impact on economic growth and economic stability.
• Adequate revenue allows the government to invest in infrastructure, education,

and healthcare, which enhances human capital and boosts productivity.
• Moreover, stable fiscal revenue provides the government with the capacity to
counter economic downturns through countercyclical fiscal policies.
• By adjusting tax rates and government spending during economic contractions,

the government can stimulate demand and help stabilize the economy.
19
Types of public revenues
• 1.Distinction regarding the economic nature of public revenues: Current VS

Capital
• 2.Distinction regarding the degree of effectiveness of public revenues: Effective

VS Non-effective (borrowing)
• 3.Distinction regarding the types of (actual) public revenue:

• Tax revenues
• Social contributions
• Property revenues
• Fees and licences
• Fines and penalties
20
Taxes and tax system
• Taxes: "A final payment of binding nature to the state, [...] and without an immediate
and direct return to the taxpayer."
• Tax system: "All taxes prevailing in a particular country or geographical area.”
In financial terms:
• Taxes and social contributions are the most important type of public revenues needed to cover public
sector expenditures, i.e., the provision of public goods, redistribution of income and price stabilisation.
-EU27: 38.8% of GDP (2011); EU28: 41.7% of GDP (2021)
-Portugal: 35.3% of GDP (2011); 37.4 % of GDP (2021)
-Philippines: 11.85% of GDP (2011); 14.13 % of GDP (2021) (no SSC based on WDI data)
In economic terms:
• Taxes induce important effects in choices and behaviour of economic agents.
21
Taxes and tax system
Tax revenue for selected regions, Tax revenues by type in developing Asia,
2000-2018 (as a share of GDP) 2000-2018 (as a share of GDP)
30 25
25 20
20
15
15
10
10
5
5
0
2009
2000
2001
2002
2003
2004
2005
2006
2007
2008
2010
2011
2012
2013
2014
2015
2016
2017
2018
0
2002
2012
2000
2001
2003
2004
2005
2006
2007
2008
2009
2010
2011
2013
2014
2015
2016
2017
2018 VAT Excises Trade Taxes Property taxes PIT CIT
Developing Asia LAC AE
Source: IMF´s WEO accessed August 2021
22
Sources of Fiscal Revenue
Taxes (Direct and Indirect):
• Taxes are the primary source of fiscal revenue for most governments.
• Direct taxes are levied directly on individuals' income and

corporations' profits, such as income tax and corporate tax.
• Indirect taxes, on the other hand, are imposed on goods and services,
like value-added tax (VAT) and excise taxes.
• The choice of tax instruments and their rates significantly impact

revenue collection, income distribution, and economic behavior.
23
Non-Tax Revenues
• Non-tax revenues encompass various sources of income for the
government that do not involve taxation.
• These revenues include user fees for government services like

healthcare or education, fines imposed for violations of laws or
regulations, revenues from licenses and permits issued to businesses,
and income generated from state-owned enterprises or assets.
• Non-tax revenues are diverse and may vary in significance across

different jurisdictions.
24
Grants and Aid
• Grants and foreign aid received from other governments,
international organizations, or donor countries also contribute to
fiscal revenue.
• These inflows often target specific development projects,

humanitarian assistance, or capacity-building programs.
• While grants and aid can provide much-needed resources, they may
also come with conditions or limitations on their usage, requiring
careful management and accountability.
25
Fiscal Revenue in Policy-Making
Government Budgeting
• Fiscal revenue analysis is integral to the government budgeting
process.
• It involves the assessment of revenue trends, potential sources of

revenue, and the impact of revenue collection on various sectors of
the economy.
• Revenue projections are a critical component of budget formulation,

as they inform the government's spending priorities and allocation of
resources to different programs and projects.
26
Revenue Trend Evaluation
• Analyzing revenue trends over time helps policymakers understand
the underlying drivers of revenue growth or decline.
• Studying historical revenue patterns can offer insights into the impact
of changes in tax policy, economic cycles, and external factors on
revenue generation.
• Revenue trend evaluation facilitates more accurate revenue

forecasting, allowing the government to plan for the future and make
informed policy decisions.
27
Impact on Public Spending Priorities
• The availability of fiscal revenue directly influences public spending
priorities.
• Higher revenue levels provide the government with more resources to

invest in public services, infrastructure, and social welfare programs.
• Conversely, lower revenue levels may necessitate budget constraints and

choices in public spending.
• Revenue analysis enables policymakers to align spending priorities with the

government's overarching economic and social objectives.
28
Fiscal Revenue and Macroeconomic Indicators
Relationship with GDP, Inflation, and Employment
• Fiscal revenue and macroeconomic indicators are closely interconnected.
Gross Domestic Product (GDP) reflects the overall economic activity within
a country and serves as an essential determinant of fiscal revenue.
• A growing economy typically generates higher revenue through increased

economic activity and rising incomes.
• Additionally, fiscal revenue influences inflation and employment levels.
• Through fiscal policies, the government can influence aggregate demand

and, consequently, the price level and employment rates.
29
Fiscal Revenue and Tax Burden
•Two measures of tax burden based on the seminal works of Frank (1959) and Bird (1964).
•Frank (1959) proposed a “tax sacrifice” measure, which captures the effects of differences
in population and personal income. In Equation (1), the measure of tax effort begins with
the tax burden in the numerator and then accounts for the ability to pay taxes:
𝑇 𝑌
𝐹𝑟𝑎𝑛𝑘𝑖𝑡 = ÷ × 100 (1)
𝑌 𝑃
where, T is tax revenues, Y is the gross national product, and Y/P scales the gross national
product by population (P).
•Bird et al. (2008) proposal in this research uses disposal income to compute tax burden:
𝑇 𝑌
𝐵𝑖𝑟𝑑𝑖𝑡 = ÷ × 100 (2)
𝑌−𝑇 𝑃
30
Fiscal Revenue and Tax Burden (cont.)
Figure 1.a Tax Burden across the world, 2017 (using the Frank Index) Figure 1.b Tax Burden across the world, 2017 (using the Bird Index)
Frank, 2016 Bird, 2016
(5,30] (5,30]
(3,5] (3,5]
(2,3] (2,3]
(1,2] (1,2]
[0,1] [0,1]
No data No data
Source: Barros, Miranda Sarmento, Jalles (2023)

31
Fiscal Revenue
Tax Effort, Capacity and Potential
• Taxable capacity is a much-debated concept of great practical importance.
• Tax capacity (or the tax frontier) is defined as the maximum theoretical level of
tax revenues that a country can mobilize given its structural characteristics.
• The ratio of actual tax revenue to tax capacity is labeled as tax effort.
• The difference between current revenue and tax capacity can be interpreted as
the tax potential, which reflects policy factors, such as low tax rates and narrow
tax bases (i.e., high level of tax exemptions and deductions) or inefficient tax
collection (i.e., a high level of non-compliance).
32
Fiscal Revenue
Tax Effort, Capacity and Potential
Table 1. Tax potential in Asia: Tax capacity – current revenue
(i) Low tax collection, low tax effort ii) High tax collection, high tax effort
current curren
revenu t
e (% tax tax tax reven tax tax tax
Countries GDP) effort capacity potential ue (% effor capaci potenti
Countries GDP) t ty al
Indonesia 11 0.6 18.38 7.38
Micronesia
Malaysia 12 0.43 28.14 16.14 , Fed. Sts. 35 0.99 35.43 0.43
Singapore 13 0.58 22.47 9.47 Korea, Rep. 27 0.99 27.34 0.34

Samoa 26 0.98 26.57 0.57
Pakistan 12 0.54 22.12 10.12
Solomon
Vietnam 14 0.82 17.13 3.13 Islands 26 0.99 26.32 0.32
Cambodia 17 0.8 21.31 4.31 China 24 0.99 24.3 0.3
India 17 0.82 20.63 3.63 Fiji 24 0.92 26.07 2.07

Tonga 20 0.99 20.25 0.25
Thailand 17 0.55 30.97 13.97
Philippines 18 0.75 23.86 5.86
(iii) Low tax collection, high tax effort (iv) High tax collection, low tax effort
current curren
revenue (% tax tax tax t
Countries GDP) effort capacity potential revenu tax tax
Papua New Countrie e (% tax capacit potenti
Guinea 13 0.99 13.16 0.16 s GDP) effort y al
Hong Kong
SAR, China 14 0.99 14.17 0.17 Japan 33 0.78 42.31 9.31
New
Myanmar 7 0.91 7.7 0.7 Zealand 33 0.82 40.13 7.13
Lao PDR 12 0.99 12.15 0.15
Australia 29 0.76 37.97 8.97
Timor-Leste 13 0.99 13.16 0.16
Hong Kong
SAR, China 14 0.99 14.17 0.17
Vanuatu 17 0.97 17.47 0.47 Source: Gupta and Jalles, 2023 33
Note: Estimation based on IMF tax and macroeconomic data for the period 1990-2019. Refer to Appendix A for further
details.
Fiscal Deficit and Public Debt
• The fiscal deficit is the difference between total government expenditures
and total revenue collected.
• When expenditures exceed revenue, a fiscal deficit occurs, which

necessitates borrowing to cover the shortfall.
• Accumulating fiscal deficits over time can lead to an increase in public

debt.
• Revenue analysis helps in understanding the impact of fiscal deficits on

public debt levels and the potential consequences for the economy, such as
interest payments and debt sustainability.
34
Fiscal Policy and Economic Stabilization
• Fiscal policy refers to the use of government spending and taxation to influence
economic conditions.
• By adjusting tax rates, the government can influence disposable income and
consumer spending, which impacts aggregate demand.
• Revenue analysis plays a pivotal role in determining the fiscal space available for
economic stabilization measures during economic downturns or periods of
inflationary pressure.
• Policymakers can use revenue analysis to design effective countercyclical fiscal

policies to promote economic stability.
35
Theoretical Foundations of Fiscal Revenue
Analysis
Revenue Elasticity and Buoyancy
• Tax elasticity considers the automatic response of revenues to the change
in income given that tax structure is unchanged.
• A tax with high elasticity will experience significant revenue changes in response to
economic fluctuations, while a tax with low elasticity will exhibit more stable
revenue generation.
• Buoyancy, on the other hand, reflects both the impacts of income and
discretionary changes on revenue earnings.
• Understanding revenue elasticity and buoyancy helps policymakers make

informed decisions regarding tax policy adjustments.
36
Analysis
The desirable taxation system
Characteristics of a "good" tax system:
• Fairness (or equity)
• Efficiency
• Flexibility
• Transparency
• Low administrative costs
• Financial effectiveness
37
Analysis
i. Equity
• The distribution of the "tax burden" amongst individuals must be fair and not
subjected to arbitrariness, thus each individual should bear its fair portion of the
burden with public activities.
• Two issues to take into consideration: Tax base & Fiscal evasion
ii. Efficiency
• Taxes should be selected in order to minimise their interference in efficient
decision making of economic agents in competitive markets.
38
Analysis
iii. Flexibility
• The structure of taxes should be designed in order to be an effective tool for
maintaining an automatic stabilisation of the macroeconomic environment.
Example: The PIT as an automatic stabiliser.
iv. Transparency (and political responsibility)

• The tax system should be easily understood by taxpayers, so that it is easy to
identify governments’ fiscal measures (tax incidence of major taxes) in order to
make governments politically accountable.
Examples: the PIT is a good tax because it is highly transparent; the levels of
fiscal illusion are far higher in VAT so that they are less transparent.
39
Analysis
v. Low administrative costs
• The costs associated with the administration of the tax system and the fulfilment
of fiscal obligations should be as low as possible. Two types of costs:
• Direct costs: how much does it actually cost to run tax administrations.
• Indirect costs: time, efforts and money required to fulfil tax obligations.
vi. Financial effectiveness

• The revenues generated by the tax system should be adequate and sufficient
enough to meet the financial needs and the objectives of fiscal policy.
40
Analysis
• In practice, there is often some difficulty in complying with these six requirements:
-Restrictions of economic, social and political nature

Example: the influence of “lobbyists” and pressure groups.
-Conflict of objectives
Example: the redistribution of income and price stabilization in times of high
inflation.
41
Analysis
Main tax Policy Objectives (Equity vs Efficiency)
• Tax policy objectives encompass a range of goals that policymakers
seek to achieve through taxation:
• Equity involves ensuring fairness and reducing income inequality through
progressive tax structures.
• Efficiency aims to minimize economic distortions and administrative burdens
caused by taxes.
• Striking a balance between equity and efficiency is a central challenge

in tax policy design, as achieving one objective may come at the
expense of the other.
42
Analysis
Conflict Equity vs Efficiency
Trade-offs
• A tax undoubtedly adequate from the equity point of view can be perceived as
inadequate regarding efficiency given that
• The more progressive a tax is, the lower would be the degree of inequality in the
distribution (of income), though the higher the generated excess burden tends be.
• A tax undoubtedly adequate from the efficiency point of view can be perceived
as inadequate regarding equity given that:
• From the efficiency standpoint, it would make perfect sense to heavily tax demand
inelastic/rigid goods even more, although this would not be necessary the case from the
equity standpoint.
43
Analysis
Inefficiency
•When fiscal policy interferes with the (efficient) decision making of economic agents in
competitive markets, inefficiencies can arise.
•The generation of the “excessive burden“
•Taxes have two effects: an income effect (it reduces real income) and a substitution effect
(it changes relative prices). The excess burden of a tax is a measure of the substitution
effect.
•Excessive burden = the loss of well-being (inefficiency) generated by taxes.

•Excessive burden is approximately equal to the difference between the loss of global
welfare (from consumers and producers) and the (tax) revenues collected as the result of
tax.
•Excessive burden of taxation AKA deadweight loss (Harberger triangle).
44
Analysis
Inefficiency (cont.)
• The explaining factors: excessive burden of taxation depends mainly on the amount or level of
the tax and the elasticities of demand and supply.
45
Analysis
Inefficiency (cont.)
There are non-distorting taxes
• A tax is said to be "non-distorting" if and only if, (legally) there exists nothing
economic agents can do to prevent or alter its economic impact.
• This type of tax is called in the economics literature the lump sum tax (e.g. a per
head tax).
There are intentionally distorting taxes:

• Pigouvian Taxes (used in the presence of externalities) purposely distort
economic agents’ choices in order to improve efficiency. So, not only Pigouvian
taxes do not create inefficiency, they promote economy efficiency.
❑ Example: imposing taxes on the consumption of alcoholic beverages (“sin
taxation”).
46
Analysis
Laffer Curve and Revenue Maximization
• The Laffer Curve illustrates the relationship between tax rates and tax revenue.
• At very low tax rates, revenue is minimal, as there is little to tax.
• As tax rates increase, revenue initially rises, but at some point, further increases
in tax rates can lead to reduced revenue due to disincentives for economic
activity and tax evasion.
• Understanding the Laffer Curve helps policymakers identify the tax rate that
maximizes revenue collection while avoiding excessive taxation that could harm
economic growth.
47
Analysis
The Dupuit-Laffer curve
Dupuit wrote: “If a tax is gradually increased

from zero up to the point where it becomes
prohibitive, its yield is at first nil, then increases
by small changes until it reaches a maximum,
after which it gradually declines until it
becomes zero again”.
48
Measuring and Analyzing Fiscal Revenue
Methods and Tools for Analysis
• Fiscal revenue analysis involves a range of methods and tools to
gather, organize, and analyze revenue data.
• Methods include: statistical techniques, data visualization tools, and

econometric models.
• Statistical measures, such as averages, ratios, and trend analysis,

provide insights into revenue patterns, while econometric models
help in estimating relationships between revenue and economic
variables.
49
Revenue Ratios and Comparative Analysis
• Revenue ratios offer valuable insights into the composition of fiscal
revenue and the government's revenue structure.
• Some common revenue ratios include tax-to-GDP ratio, tax-to-total

revenue ratio, and tax revenue per capita.
• Comparative analysis of these ratios allows policymakers to

benchmark revenue performance against other countries or historical
trends, facilitating peer learning and identifying areas for
improvement.
50
Revenue Ratios and Comparative Analysis (cont.)
• Tax revenue collection as a
share of GDP is only 15 to 20%
in lower- and middle-income
countries but over 30% in
upper income countries
(Bachas et al., 2021).
• This tax gap is important:

developing countries have less
tax revenue to spend on public
goods, which are correlated
with living standards.
Source: Bachas et al., 2021 using ICTD/UNU-Wider Data.
51
Revenue Ratios and Comparative Analysis

52
Revenue Ratios and Comparative Analysis (cont.)

53
Challenges in Data Collection
• Fiscal revenue analysis faces challenges related to data collection, accuracy,
and availability.
• Governments rely on tax authorities and other agencies to collect and

report revenue data accurately.
• However, factors like tax evasion, informal economy activities, and

inadequate administrative capacity may lead to data gaps and inaccuracies.
• Addressing these challenges is essential for producing reliable and timely

revenue analysis.
54
Ethics and Transparency in Fiscal Revenue
Collection
Ethical Considerations
• Fiscal revenue collection must adhere to ethical principles to ensure
fairness and public trust.
• Ethical considerations in taxation include progressivity, which ensures that

individuals with higher incomes contribute proportionally more, and
transparency, ensuring that taxpayers understand how their money is used
for public purposes.
• Additionally, tax policies should avoid discrimination and be designed to

minimize unintended negative consequences.
55
Collection
Importance of Transparency and Accountability
• Transparency and accountability are essential for effective fiscal revenue
management.
• Governments should be transparent in communicating tax policies, tax

rates, and how revenue is utilized.
• This fosters public trust and encourages taxpayer compliance.
• Accountability involves ensuring that revenue is used efficiently and in line

with the intended public purposes, minimizing waste and corruption.
56
Collection
Impact of Tax Evasion and Avoidance
• Tax evasion, where taxpayers intentionally underreport income or engage
in illegal activities to avoid paying taxes, and tax avoidance, which involves
using legal means to minimize tax liability, have significant consequences
for fiscal revenue.
• These practices result in revenue losses, reduced funding for public

services, and increased burden on compliant taxpayers.
• Implementing effective measures to combat tax evasion and avoidance is

crucial for revenue generation and promoting equity.
57
Figure 3: Relationship between Proxies for Tax Compliance and Tax Revenue

Collection
More revenue requires better fiscal governance
• Countries need to improve fiscal governance to help raise the revenue effort.
• Tax compliance (one aspect of fiscal governance) is positively associated with
revenue mobilization.
Figure 3: Relationship
Figure 3: Relationshipbetween
betweenProxies for Tax
Proxies for TaxCompliance
Compliance and
and TaxTax Revenue
Revenue Figure 3: Relationship between Proxies for Tax Compliance and Tax Revenue
AE = advanced economies, CPIA = country policy and institutional assessment, GDP = gross domestic product, IMF = International Monetary Fund, LAC = Latin America and the Caribbean, VAT = value-added tax.
Note: Red dots: developing Asia, blue dot: LAC, and orange dot: AEs. Data for tax revenue in percent of GDP are for the average 2015–2019; for the CPIA indexes, average values for 2015–2019; for absence of irregular payments
AE =ofadvanced
and bribes, the average of 2014–2018; for VAT-revenues, average for 2015–2018; and for VAT C-Efficiency, the average economies, CPIA = country policy and institutional assessment, GDP = gross domestic product, IMF =
2015–2018.
International
Sources: IMF World Economic Outlook database (tax revenues), World Bank (CPIA ratings), IMF Fiscal Affairs Department Monetary
(database on VATFund, LAC = Latin
efficiency), America
Global and the Caribbean,
Competitiveness ReportVAT = value-added
database tax.absence of 58
(rating for irregular
payments and bribes) Note: Red dots: developing Asia, blue dot: LAC, and orange dot: AEs. Data for tax revenue in percent of GDP are for the
References
1. Rosen, H. S., & Gayer, T. (2014). Public Finance. McGraw-Hill Education.
This comprehensive textbook covers various topics related to public finance, including fiscal revenue analysis and taxation
principles.
2. Musgrave, R. A., & Musgrave, P. B. (1989). Public Finance in Theory and Practice. McGraw-Hill Education.
A classic textbook on public finance that provides in-depth coverage of fiscal revenue analysis and related concepts.
3. Bird, R. M., & Smart, M. (2002). Intergovernmental Fiscal Transfers: International Lessons for Developing Countries. World Bank
Publications.
This book focuses on intergovernmental fiscal transfers, providing insights from international experiences.
4. Slemrod, J., & Bakija, J. (2008). Taxing Ourselves: A Citizen's Guide to the Debate over Taxes. The MIT Press.
An accessible book that explores tax policy and taxation principles.
5. James, S., & Nobes, C. (2019). The Economics of Taxation: Principles, Policy, and Practice. Oxford University Press.
A comprehensive book on the economics of taxation.
6. International Monetary Fund (IMF) Fiscal Affairs Department. (2003). Revenue Administration: A Toolkit for Implementing Fiscal
Reforms. IMF Publications.
This IMF toolkit provides practical guidance on revenue administration, tax compliance, and enforcement.
7. OECD. (2017). Revenue Statistics 2017. Organisation for Economic Co-operation and Development.
An authoritative source of revenue statistics from OECD countries, valuable for comparing revenue structures and trends across
countries.
59
2.Taxation
Principles and
Concepts
60
Taxation Principles and Concepts
Principles of Taxation
• Taxation: The process by which governments collect revenue from
individuals and businesses to fund public expenditures.
• Importance of Taxation: Funding government operations, providing

public goods and services, and promoting economic stability and
growth.
61
More revenue means more spending
• Low revenues remain an impediment to the expansion of social spending that could make growth
more inclusive in developing countries.
Figure 2: Total Revenue versus Social Spending Components
Total Revenue and Average Health Spending, 2014– Total Revenue and Average Education Spending,
2018 2013–2017
AE = advanced economies, GDP = gross domestic product, LAC = Latin America and the Caribbean. 62
Sources: World Economic Outlook database; World Development Indicators.
Tax Incidence and Shifting
• Tax Incidence: Distribution of the tax burden between buyers and sellers in
a market.
• Factors influencing tax incidence: Elasticity of demand and supply.
❑Example, a sales tax may be legally levied on sellers, but it can be passed on to
consumers in the form of higher prices, impacting their purchasing power.
• Understanding tax incidence helps policymakers anticipate the distributive
effects of tax policies on various groups, which is crucial for addressing
income inequality and ensuring the fairness of the tax system.
• Tax Shifting: Businesses transferring the tax burden to consumers by raising

prices.
• Examples of tax shifting and impact on consumer behavior.
63
Tax Policy Analysis
• Evaluating Tax Policies and Revenue Generation:
• Assessing the effectiveness of tax policies in generating government revenue.
• Impact of tax policy changes on revenue collection and economic behavior.
• Tax Incentives and Exemptions:

• Promoting specific activities or industries through tax incentives.
• Rationale behind tax exemptions and implications for revenue collection.
• Tax Revenue Forecasting Techniques (tomorrow!):

• Methods for forecasting tax revenue: Statistical techniques, time series
analysis, and econometric modelling.
64
Tax Compliance and Enforcement
• The Importance of Tax Compliance for Revenue Collection:
• Fulfilling legal obligations and contributing to government revenue.
• Consequences of non-compliance: Reduced revenue and increased tax gap.
• Factors Influencing Tax Compliance Behavior:

• Psychological, social, and economic factors influencing compliance decisions.
• Using behavioral insights for effective compliance strategies.
• Strategies for Enhancing Tax Compliance and Enforcement:

• Promoting voluntary compliance through improved taxpayer service.
• Simplifying tax systems and effective enforcement measures.
• Addressing challenges like tax evasion and fraud.
65
Revenue Forecasting and Budgeting
• Techniques for Revenue Forecasting at the National and Sub-National Levels:
• Econometric models, time series analysis, expert judgment, and macroeconomic forecasting
methods.
• Use of leading indicators and economic indicators for revenue projections.
• Challenges in Revenue Projection and Potential Solutions:

• Addressing challenges in revenue forecasting: Data quality and economic uncertainties.
• Improving accuracy and reliability through scenario analysis and sensitivity testing.
• Linking Revenue Analysis to the Budgeting Process:

• Informing the budget formulation process through revenue analysis.
• Impact of fiscal constraints and revenue projections on budget priorities and resource
allocation.
66
References
1. Gruber, J. (2019). Public Finance and Public Policy. Worth Publishers.
2. Rosen, H. S., & Gayer, T. (2014). Public Finance. McGraw-Hill Education.
3. Musgrave, R. A., & Musgrave, P. B. (1989). Public Finance in Theory and Practice. McGraw-Hill Education.
4. Slemrod, J., & Bakija, J. (2017). Taxing Ourselves: A Citizen's Guide to the Debate over Taxes. The MIT Press.
5. James, S., & Nobes, C. (2019). The Economics of Taxation: Principles, Policy, and Practice. Oxford University Press.
6. OECD. (2019). Tax Policy Reforms 2019: OECD and Selected Partner Economies. OECD Publishing.
7. Bird, R. M., & Smart, M. (2019). The Economics of Taxation: Principles, Policy, and Practice. Canadian Tax
Foundation.
8. Auerbach, A. J., & Slemrod, J. (Eds.). (2020). Taxation and the Financial Crisis. National Bureau of Economic
Research.
9. IMF Fiscal Affairs Department. (2020). Tax Policy: Recent Trends and Coming Challenges. IMF Publications.
67
3.Tax Policy
Analysis
68
Tax Policy Analysis
Introduction
• Tax policy analysis is a crucial aspect of public finance and economic
policymaking.
• It involves a systematic assessment of various tax policies and their

implications for the economy, society, and government revenue.
• Through tax policy analysis, policymakers aim to understand the economic

effects, distributional impacts, and behavioral responses resulting from
changes in tax laws.
• It provides valuable insights into the potential consequences of tax reforms

and helps guide evidence-based decision-making.
69
Tax Policy Analysis
Objectives of Tax Policy Analysis
• Tax policy analysis serves several fundamental objectives that governments
aim to achieve through their fiscal policies.
1. promote economic growth and stability by designing tax systems that

incentivize investment, savings, and entrepreneurship.
2. assessing the impact of tax policies on income distribution and
addressing issues of equity and social justice.
3. improving economic efficiency and reducing market distortions caused
by taxation.
4. evaluating the revenue-generating capacity of different tax measures and
their implications for the fiscal sustainability of governments.
70
Tax Policy Analysis
Criteria for Evaluating Tax Policies
• Effectiveness in achieving policy objectives tops the list, where policymakers
analyze whether a tax policy successfully achieves its goals (e.g promoting
investment, reducing inequality, or stimulating growth).
• Administrative feasibility is another crucial criterion as tax policies must be

implementable without undue complexity or administrative burden.
• Equity and fairness consider the distributional impact of taxes across different
income groups, aiming for a fair distribution of the tax burden.
• Simplicity and transparency are valued as they enhance taxpayer understanding

and compliance, while political acceptability acknowledges the influence of public
attitudes and the political climate on tax policy decisions.
71
Tax Policy Analysis
Dynamic Scoring in Tax Policy Analysis
• Dynamic scoring in tax policy analysis takes into account the behavioral
responses of individuals and businesses to changes in tax policies.
• Traditional static analysis assesses the immediate revenue impact of tax

changes, assuming no behavioral changes in response to those changes.
• However, dynamic scoring recognizes that tax reforms can influence

economic decisions, such as work effort, savings, and investment choices,
leading to changes in economic growth and overall revenue.
• The Laffer curve illustrates that extreme tax rates can lead to disincentives
for economic activity, causing revenue losses.
72
Tax Policy Analysis
Types of Tax Policy Analysis
• Static analysis assesses the immediate revenue and distributional effects of tax changes
without considering behavioral responses.
• Dynamic analysis accounts for behavioral changes, providing a more holistic view of tax
policy impacts on economic activity and revenue.
• Microsimulation models use detailed individual or household data to simulate the

behavior of different groups in response to tax policy changes, allowing for a fine-grained
analysis of distributional effects.
• Computable General Equilibrium (CGE) models capture the interactions between

different sectors of the economy, enabling an examination of the broader economic
effects of tax reforms.
73
Tax Policy Analysis
Distributional Analysis and Equity
• Distributional analysis is a critical aspect of tax policy evaluation.
• It allows policymakers to understand how the tax burden is distributed across

different income groups and how the tax system impacts income inequality.
• Various measures - Gini index and the Lorenz curve - can be used.
• Policymakers aim to design tax systems that are progressive, contributing to a

more equitable distribution of the tax burden.
• Addressing income inequality through the tax system can be achieved by

targeting specific tax credits, exemptions, or targeted welfare programs.
74
Tax Policy Analysis
Political Economy of Tax Policy
• Public opinion plays a significant role, as public support or resistance
can affect the feasibility of tax reforms.
• Additionally, lobbying efforts by interest groups and businesses can

influence the design and implementation of tax policies.
• Policymakers often face challenges in aligning optimal tax policy

recommendations with political realities, as some measures may
face opposition or have unintended consequences.
75
Tax Policy Analysis
Tax Expenditure Analysis
• Tax expenditure analysis focuses on examining the revenue losses resulting
from various tax provisions, known as tax expenditures.
• These provisions, such as deductions, credits, or exemptions, effectively subsidize
specific economic activities or groups.
• While they may serve legitimate policy objectives, they represent forgone
government revenue and can have distributional implications.
• Evaluating tax expenditures involves assessing their efficiency and

effectiveness in achieving policy goals and their cost in terms of lost
revenue.
76
Tax Policy Analysis
Tax Expenditure Analysis (cont.)
• TEs are typically not subject to the same degree of scrutiny in budgetary
processes as direct spending and are infrequently assessed in terms of their costs
and benefits (CBO 2012, CRS 2019).
• The use of tax expenditures is characterized by a striking lack of transparency

and accountability (Burman and Phaup, 2011). As such, they permit “spending”
that is outside the budget.
• In some countries, it is a legal requirement to estimate tax expenditures

annually. In other countries (including a few emerging market economies), such
estimates are produced only periodically. The data are relatively sparse for LICs.
77
Tax Policy Analysis
Average of countries reporting and revenue forgone by region in developing Asia
35%
30%
25%
Revenue Forgone
20%
15%
10%
5%
0%
Developing Asia [9] Central Asia [1] Pacific [2] South Asia [4] Southeast Asia [2]
Region
Revenue Forgone (% of GDP) Revenue Forgone (% of Tax Revenue)
Note: number of countries in parenthesis after each regional breakdown.

Source: Global Tax Expenditure Database (Haldenwang et al., 2021) accessed August 2021 78
Tax Policy Analysis
Tax expenditure (percent of GDP) vs tax expenditure (percent of tax revenue)
Note: red dots represent countries in developing Asia, blue dots represent the remaining countries in the sample. Data is based on the latest
available year.
Tax Policy Analysis
Number of provisions by tax expenditure type in developing Asia (1990-2020)
Note: red dots represent countries in developing Asia, blue dots represent the remaining countries in the sample. Data is based on the latest
available year.
Tax Policy Analysis
Tax expenditures in relation to the tax base in developing Asia
30
25
Share of Total Revenue Forgone
20
15
10
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Taxes on Goods and Services Taxes on Income
Note: only provisions with a revenue foregone estimate are included.

Source: Global Tax Expenditure Database (Haldenwang et al., 2021) accessed August 2021
81
Tax Policy Analysis
Tax Policy Reform Options
1. Tax simplification involves streamlining the tax system, reducing complexities,
and making compliance easier for taxpayers.
2. Broadening the tax base involves reducing tax preferences and loopholes,
expanding the tax base, and potentially lowering tax rates.
3. Timing to implement tax reforms: gradually or immediately, considering the

economic and political implications of each approach.
4. International tax cooperation: vital in an increasingly interconnected global

economy, as countries work together to address cross-border tax issues and
combat tax avoidance and evasion.
82
Tax Policy Analysis
Challenges in Tax Policy Analysis
• Data limitations can hinder the analysis, as some data may be incomplete
or unavailable.
• Behavioral assumptions, such as predicting taxpayer responses, may

introduce uncertainty in the analysis.
• The complexities of dynamic scoring, especially when estimating long-

term behavioral effects, can add to the challenges.
• Political constraints can influence the adoption and implementation of

optimal tax policies, as political decisions may prioritize short-term
considerations over long-term economic objectives.
83
Tax Policy Analysis
Evaluating Tax Reforms
Case Study: Comprehensive Tax Reform Program (CTRP) in the Philippines
• Background: The Philippines faced challenges with its tax system, including low revenue collection,
complex tax laws, and a narrow tax base. To address these issues and support sustainable economic
growth, the government introduced the Comprehensive Tax Reform Program (CTRP).
• Objectives of the CTRP:

1. Simplify Taxation: simplify the tax system by rationalizing tax rates and eliminating inefficient and
redundant tax provisions, making compliance easier for taxpayers.
2. Enhance Revenue Collection: improve tax administration, broaden the tax base, and increase
revenue collection to support public expenditure and investments in infrastructure and social
services.
3. Promote Economic Growth: create a more attractive investment environment by reducing
corporate income tax rates and providing incentives to businesses, encouraging domestic and
foreign investments.
4. Ensure Equity and Social Justice: introduce measures that would promote equity in taxation,
ensuring that higher-income individuals and businesses contribute their fair share to government
revenue.
84
Tax Policy Analysis
• The CTRP introduced several significant changes to the tax system:
1.PIT Reform: The CTRP adjusted the personal income tax brackets and rates,
providing tax relief for low- and middle-income individuals and reducing the tax
burden on lower-income earners.
2.Lower CIT Rates: The reform reduced the corporate income tax rate over several
years to attract more investments and promote economic competitiveness.
3.Expansion of the VAT Base: The CTRP aimed to broaden the VAT base by reducing
VAT exemptions and increasing the number of goods and services subject to VAT.
4.Indexation of Excise Taxes: Excise taxes on fuel, alcohol, tobacco, and sugary
beverages were indexed to inflation, ensuring that their value keeps pace with
rising prices.
85
Tax Policy Analysis
• Methodology for Analysis: involved data analysis, distributional analysis, and

economic modelling.
1.Data Analysis: The government collected data on tax collections, economic

indicators, and income distribution to assess the revenue impact and
distributional consequences of the reform.
2.Distributional Analysis: Distributional analysis evaluated how the tax changes

affected different income groups, ensuring that the reform promoted equity.
3.Economic Modelling: Economic modelling helped project the potential impact of

the tax reform on investment, consumption, and overall economic growth.
86
Tax Policy Analysis
• Results and Findings:
1.Revenue Impact: The CTRP led to an increase in tax revenue over time due to
improved compliance, broadening of the tax base, and economic growth resulting
from business investments.
2.Simplified Taxation: The reform rationalized tax rates and simplified tax
compliance for individuals and businesses, leading to increased tax compliance.
3.Economic Growth: The CTRP's reduced CIT rates and incentives for investments
contributed to increased business activity and economic growth.
4.Distributional Impact: The reform provided tax relief for low- and middle-income
individuals, reducing their tax burden and improving income distribution.
87
Tax Policy Analysis
• Policy Implications:
1.Revenue Allocation: The government should ensure that the increased tax
revenue is efficiently allocated to fund infrastructure and social programs,
supporting sustainable development.
2.Monitoring and Review: Continuous monitoring of the reform's impact

and distributional consequences should guide future adjustments to
ensure its effectiveness and equity.
3.Public Awareness: Communicating the benefits of the tax reform to the

public helps garner support and encourage compliance.
88
Tax Policy Analysis
Examples of Good Tax Reforms
1.Simplification and Rationalization: A good tax reform simplifies the tax
system by reducing the number of tax brackets, eliminating unnecessary
deductions, and streamlining tax processes. This simplification improves
tax compliance, reduces administrative burdens, and makes it easier for
taxpayers to understand and fulfil their tax obligations.
2.Broadening the Tax Base: A well-designed tax reform expands the tax base
to include a wider range of economic activities and sectors, ensuring that
more taxpayers contribute to government revenue. Broadening the tax
base helps reduce reliance on a small group of taxpayers and enhances
revenue stability.
89
Tax Policy Analysis
Examples of Good Tax Reforms (cont.)
3.Progressive Taxation: Implementing progressive taxation is
considered a good tax reform. Progressive taxation helps promote
equity and social justice by ensuring that those with more significant
financial means bear a larger share of the tax burden.
4.Targeted Tax Incentives: Good tax reforms offer targeted tax

incentives to encourage specific behaviors or investments that benefit
society, such as R&D tax credits, green energy incentives, or tax
breaks for job creation in economically disadvantaged areas.
90
Tax Policy Analysis
Examples of Good Tax Reforms (cont.)
5. Public Input and Transparency: Involving the public in the tax reform
process and maintaining transparency in decision-making are essential
aspects of a good tax reform.
91
New Zealand - Tax Simplification: In the early 2010s, New
Zealand undertook a significant tax simplification effort,
reducing the number of tax brackets from 8 to 4. This
Tax Policy reform streamlined the PIT system, making it easier for
individuals to calculate their taxes and reducing compliance
Analysis costs. The simplified tax structure contributed to higher tax
compliance rates and improved revenue collection
Country efficiency.
examples of India - Goods and Services Tax (GST) Reform: India's

implementation of the GST in 2017 is an example of a
Good Tax successful tax reform aimed at simplification and
broadening the tax base. The GST replaced multiple
Reforms indirect taxes with a single tax, unifying the country's
fragmented tax structure. This reform eliminated tax
cascading, reduced compliance burdens for businesses,
and improved revenue collection efficiency.
92
Tax Policy Sweden - Progressive Taxation: Sweden's progressive
income tax system is considered a good tax reform, as
Analysis it ensures that higher-income individuals contribute a
larger share of their income to taxes.
Country
examples of Singapore - Targeted Tax Incentives: Singapore's tax
system offers targeted tax incentives to attract
Good Tax investment and promote specific economic sectors.
Reforms For example, the country provides generous R&D tax
credits to encourage innovation and technological
(cont.) advancement.
93
1. Excessive Tax Cuts without Offsetting Measures: A bad tax
reform involves significant tax cuts without adequately
addressing revenue shortfalls through other means, such as
Tax Policy reducing government spending or broadening the tax base.
Such reforms can lead to budget deficits and fiscal instability.
Analysis 2. Complexity and Loopholes: A bad tax reform introduces

Examples of unnecessary complexity and loopholes in the tax system,
which can result in tax avoidance and evasion. Complex tax
Bad Tax laws burden taxpayers and may lead to inefficient allocation of
resources.
Reforms
3. Regressive Taxation: Implementing regressive tax policies,
where lower-income individuals bear a disproportionately
higher tax burden, is considered a bad tax reform.
94
4. Lack of Public Participation: A bad tax reform lacks public
engagement and transparency. Failure to involve citizens and
stakeholders can result in policies that do not adequately
Tax Policy address the needs and concerns of the people.
Analysis 5. Short-Term Thinking: Tax reforms driven by short-term

Examples of political considerations rather than long-term economic goals
can have adverse consequences. Reforms that prioritize
immediate popularity over economic sustainability may lead to
Bad Tax fiscal imbalances and hinder long-term growth.
Reforms 6. Inconsistent or Frequent Changes: Tax reforms that are

(cont.) inconsistent or frequently changing create uncertainty for
businesses and individuals, making it difficult for them to plan
and invest. Stable and predictable tax policies are crucial for
fostering economic growth and investment confidence.
95
United States - Excessive Tax Cuts without Offsetting
Tax Policy Measures: In some instances, tax cuts in the United
States have been implemented without adequately
Analysis offsetting the reduced revenue through spending
cuts. This has contributed to increasing budget deficits
Country and has raised concerns about the sustainability of
the country's fiscal policy.
examples of
Bad Tax Zimbabwe - Regressive Taxation: In the past,
Zimbabwe implemented regressive tax policies that
Reforms heavily burdened lower-income individuals (e.g.
regressive taxes on essential goods and services).
96
Venezuela - Complexity and Loopholes: Venezuela's
Tax Policy tax system has been criticized for its complexity and
the presence of loopholes that facilitate tax evasion.
Analysis The intricate tax laws, combined with the lack of
effective enforcement, have contributed to significant
Country tax evasion and reduced revenue collection.
examples of
Argentina - Frequent Changes in Tax Laws: Argentina
Bad Tax has experienced frequent changes in tax laws over the
Reforms years, creating uncertainty for businesses and
investors. The inconsistency in tax policies has made it
(cont.) challenging for businesses to plan for the long term
and has negatively impacted investment confidence.
97
References
1. Bird, R. M., & Gendron, P. P. (2007). The VAT in Developing and Transitional Countries. Cambridge University Press.
2. Keen, M., & Lockwood, B. (2010). The value-added tax: Its causes and consequences. Journal of Development
Economics, 92(2), 138-151.
3. Slemrod, J. (Ed.). (2017). Tax systems. The Oxford Handbook of the Economics of Taxation, Volume 1.
4. Tanzi, V., & Zee, H. H. (2000). Tax policy for emerging markets: Developing countries. International Monetary Fund.
5. Musgrave, R. A., & Musgrave, P. B. (1989). Public Finance in Theory and Practice. McGraw-Hill.
6. Besley, T., & Rosen, H. S. (Eds.). (2014). Fiscal Policy after the Financial Crisis. University of Chicago Press.
7. Shah, A. (Ed.). (2014). Public Finance in Developing and Transitional Countries: Essays in Honor of Richard Bird.
Springer.
8. Atkinson, A. B., & Stiglitz, J. E. (1980). Lectures on Public Economics. McGraw-Hill.
9. Arnold, J. (2019). Tax Policy and the Economy. National Bureau of Economic Research.
10.Tanzi, V., & Schuknecht, L. (2000). Public spending in the 20th century: A global perspective. Cambridge University
Press.
98
4.Non-Tax
Revenue
Analysis
99
Non-Tax Revenue Analysis
Introduction
• Non-Tax Revenue: Non-tax revenue refers to the income generated
by the government through sources other than taxes.
• These revenues play a crucial role in funding public services,

development projects, and government operations.
• BARMM´s main sources of revenues are derived greatly from non-tax

revenues from mining and fisheries.
100
Importance of Non-Tax Revenue
• Diversifying Revenue Sources: Relying solely on tax revenue can lead to revenue
volatility. Non-tax revenue sources help diversify income streams and provide stability to
government finances.
• Funding Development Projects: Non-tax revenue plays a significant role in financing

infrastructure development and public projects that contribute to economic growth.
• Reducing Fiscal Deficits: Effective utilization of non-tax revenue can help reduce fiscal
deficits and support responsible fiscal management.
• Promoting Efficiency and Accountability: Analyzing non-tax revenue sources helps

identify potential areas for efficiency improvements and enhances transparency in
government financial management.
101
Types of Non-Tax Revenue
1.Fees and Charges: Revenue collected from fees for government services, licenses,
permits, fines, and penalties.
2.Revenue from Government Assets: Income generated from the use, lease, or sale of
government-owned assets, such as land, buildings, and natural resources.
3.Dividends and Profits: Income earned from government-owned enterprises and
investments in public sector corporations.
4.Grants and Donor Funding: Funds received as grants or aid from international
organizations and foreign governments.
5.Royalties and Licensing Fees: Income obtained from the use of intellectual property,
patents, and copyrights.
6.Special Assessments: Revenue collected from specific assessments or levies for
particular services or projects.
7.User Charges: Fees paid by individuals or businesses for the use of specific government
services or facilities.
102
Challenges in Non-Tax Revenue Generation
1. Administrative Capacity: Some non-tax revenue sources may require efficient administrative
systems for collection, which could be challenging in some regions.
2. Compliance and Enforcement: Ensuring compliance and enforcing payment of fees and charges
can be complex, affecting revenue collection.
3. Market Fluctuations: Revenue from government assets and enterprises may be subject to market
fluctuations, impacting income levels.
4. Dependence on External Factors: Grant funding and foreign aid can be uncertain and may
depend on external factors beyond the government's control.
5. Political Considerations: Some non-tax revenue sources, such as user charges, may face political
resistance, affecting their implementation.
103
Strategies for Optimizing Non-Tax Revenue
1. Robust Policy Framework: Develop a clear policy framework to identify and exploit non-tax revenue sources.
2. Strengthening Administrative Capacity: Invest in improving administrative capabilities for efficient

collection.
3. Asset Management: Implement asset management strategies to optimize revenue from SOE.
4. Public-Private Partnerships (PPPs): Collaborate with the private sector through PPPs to generate revenue
from infrastructure projects and services.
5. Grants and Aid Management: Efficiently manage grants and foreign aid.
6. User Charge Rationalization: Assess and rationalize user charges.
104
Case Study - Singapore's Non-Tax Revenue
Strategy
• Background: Singapore has achieved remarkable economic growth and fiscal stability over the
years. One of the key factors contributing to its success is a well-executed non-tax revenue
strategy. The Singaporean government has implemented various measures to optimize non-tax
revenue sources, providing a steady stream of income to fund public services, infrastructure
development, and social welfare programs.
105
Strategy (cont.)
1. Government Assets: The Singaporean government owns significant assets, including land and properties. By
efficiently managing and leveraging these assets, the government generates substantial revenue through
land sales, lease agreements, and dividends from government-owned enterprises.
2. State-Owned Enterprises (SOEs): Singapore has established a portfolio of successful state-owned

enterprises, such as Singapore Airlines, Singapore Power, and Temasek Holdings. The government receives
dividends from these entities.
3. Land Sales and Leases: With limited land resources, Singapore carefully plans land sales and leases to
optimize revenue. It strategically allocates land for commercial, residential, and industrial purposes.
4. Investment Income: Singapore's prudent management of its sovereign wealth funds, such as the
Government Investment Corporation (GIC) and the Monetary Authority of Singapore (MAS), results in
investment returns that contribute to non-tax revenue.
106
Strategy (cont.)
• Optimization Strategies:
1. Efficient Asset Management: It carefully assesses market conditions, demand, and development
opportunities, ensuring the maximum returns from land sales and leases.
2. Public-Private Partnerships (PPPs): Singapore actively engages in public-private partnerships to finance and
develop major infrastructure projects. These partnerships allow the government to share costs, attract
private investment, and create revenue-generating assets for the country.
3. Dividend Policy for SOEs: The government adopts a prudent dividend policy for state-owned enterprises,
ensuring that they remain financially healthy while contributing dividends to the national coffers.
4. Sovereign Wealth Fund Management: Singapore's sovereign wealth funds are managed prudently, aiming
for long-term sustainability and generating returns that contribute to non-tax revenue.
107
Strategy (cont.)
• Success and Impact:
1. Sustained Fiscal Stability: Singapore's effective non-tax revenue strategy has contributed to sustained
fiscal stability, enabling the government to maintain low levels of public debt and invest in critical
infrastructure and social programs.
2. Resilience during Economic Downturns: The diverse revenue sources provide a buffer during
economic downturns, helping the government manage fiscal challenges.
3. Quality Public Services and Infrastructure: Non-tax revenue has played a significant role in funding
high-quality public services, modern infrastructure, and efficient healthcare and education systems.
4. Attracting Foreign Investment: Singapore's reputation for sound fiscal management and stable
revenue sources has attracted foreign investors and businesses, further boosting economic growth.
108
References
1. International Monetary Fund. (2019). Non-Tax Revenue: Trends and Challenges in Tax Administration. IMF Policy Paper.
2. World Bank. (2020). Maximizing Government Non-Tax Revenue: Challenges and Strategies. World Bank Group.
3. Organisation for Economic Co-operation and Development (OECD). (2016). Revenue Statistics 1965-2015: Tax Revenue,
Non-Tax Revenue and Tax-to-GDP Ratios.
4. International Center for Not-for-Profit Law (ICNL). (2018). Non-Tax Revenue Sources for Governments: A Global Overview.
5. International Monetary Fund. (2016). Non-Tax Revenue Mobilization: Challenges and Opportunities. IMF Working Paper.
6. Musgrave, R. A., & Musgrave, P. B. (1976). Public Finance in Theory and Practice. McGraw-Hill.
7. Ahmad, E., & Singh, R. D. (Eds.). (2014). The Challenge of Non-Tax Revenue Collection in Developing Countries. Routledge.
8. Boadway, R., & Shah, A. (2007). Fiscal Federalism: Principles and Practice of Multiorder Governance. Cambridge University
Press.
9. Davis, O., & Swarbrick, J. (2015). Non-Tax Revenue and the Financing of Subnational Governments. OECD Fiscal Federalism
Studies.
10.World Bank. (2019). Maximizing Non-Tax Revenue for Fiscal Sustainability: Experiences from South Asia. World Bank
Group.
109
5.Fiscal
Federalism and
Revenue
Sharing
110
Fiscal Federalism and Revenue Sharing
Introduction
• Fiscal Federalism: refers to the division of fiscal powers and
responsibilities between the central government and subnational
entities (states, provinces, or regions) in a federal system.
• Importance of Revenue Sharing: Revenue sharing mechanisms are

crucial in ensuring financial stability, equitable resource allocation,
and cooperation between different levels of government.
111
Key Concepts in Fiscal Federalism
1.Decentralization: The delegation of authority and fiscal responsibilities to lower
levels of government, allowing them to make decisions and manage their
finances independently.
2.Vertical Fiscal Imbalance: The disparity between the revenue-generating capacity

and expenditure responsibilities of the central government and subnational
entities.
3.Horizontal Fiscal Imbalance: The economic disparities among subnational

entities, leading to varying levels of fiscal capacity and needs.
4.Revenue Assignment: Determining which levels of government have the

authority to levy specific taxes and collect revenue from various sources.
112
Revenue Sources in Fiscal Federalism
1.Central Government Revenue Sources: Income tax, corporate tax,
customs duties, excise taxes, and other revenue streams controlled by
the central government.
2.Subnational Government Revenue Sources: Local property tax, local

sales tax, user fees, and grants received from the central government.
3.Shared Revenue Sources: Taxes or revenue sources shared between

the central government and subnational entities, such as VAT sharing
or natural resource revenues.
113
Benefits of Revenue Sharing
1.Equitable Resource Allocation: Revenue sharing helps ensure that subnational
entities receive adequate funding to meet their responsibilities and deliver public
services effectively.
2.Fiscal Discipline: Subnational governments become more accountable for their

spending decisions as they rely on shared revenues and local sources.
3.Promoting Cooperation: Revenue sharing fosters collaboration and cooperation

between the central government and subnational entities in achieving common
goals.
4.Regional Development: Effective revenue sharing can support balanced regional

development by directing resources to areas with lower fiscal capacity.
114
Challenges in Revenue Sharing
1.Vertical Fiscal Imbalance: Unequal revenue-generating capacity between the
central government and subnational entities may lead to fiscal disparities.
2.Horizontal Fiscal Imbalance: Economic disparities among subnational entities can

affect their revenue-raising capabilities and financial needs.
3.Tax Collection Efficiency: Ensuring efficient tax collection and minimizing tax
evasion challenges revenue sharing mechanisms.
4.Overreliance on Central Transfers: Subnational entities may become overly

dependent on central government transfers, leading to complacency in revenue
collection efforts.
115
Revenue Sharing Mechanisms
1.Formula-Based Grants: Allocating funds to subnational entities based on
predetermined formulas considering factors like population, per capita income,
and development indicators.
2.Tax-Sharing Agreements: Central government and subnational entities share the

revenue from certain taxes, such as VAT, according to agreed-upon percentages.
3.Block Grants: Providing fixed amounts of funds to subnational entities for specific
purposes without strict conditions.
4.Performance-Based Grants: Tying grants to performance targets to incentivize

subnational entities to achieve specific outcomes.
116
Case Study - Revenue Sharing in Canada
• Background: Canada is a federal country comprising ten provinces and three
territories. Fiscal federalism in Canada involves the division of fiscal powers and
responsibilities between the federal government and the provincial governments.
Revenue sharing mechanisms play a crucial role in ensuring financial stability,
promoting cooperation, and addressing fiscal disparities among provinces.
Equalization Program: Addressing Horizontal Fiscal Imbalance

• The Equalization Program is a key revenue sharing mechanism in Canada, aimed
at addressing horizontal fiscal imbalance among provinces.
117
Case Study - Revenue Sharing in Canada
Objectives of the Equalization Program:
1.Equal Access to Public Services: The primary objective of the Equalization
Program is to ensure that all provinces can provide comparable levels of public
services to their residents, regardless of their fiscal capacity.
2.Promoting National Unity: By helping provinces with lower fiscal capacity

provide essential public services, the Equalization Program fosters national unity
and social cohesion.
3.Fiscal Stability: The program helps mitigate fiscal disparities and stabilize
provincial budgets, enhancing financial predictability for both provincial
governments and the federal government.
118
Case Study - Revenue Sharing in Canada (cont.)
Formula-Based Allocation:
• The Program uses a formula-based allocation mechanism to determine the amount of funding for each
province.
• The formula considers the revenue-raising capacity of each province, taking into account factors like per
capita income, resource revenues, and the cost of delivering public services.
Conditional Transfers:
• Canada also employs conditional transfers to provide funding to provinces for specific purposes, such as
healthcare, education, and infrastructure. These transfers are tied to certain conditions.
Provincial Autonomy and Federal Oversight:

• Although the federal government provides funding through revenue sharing mechanisms, provincial
governments retain significant autonomy in their spending decisions.
• However, the federal government monitors and evaluates the effectiveness of the funding provided.
119
Case Study - Revenue Sharing in Canada (cont.)
• Impact and Benefits:
1.Reduction of Fiscal Disparities: The Equalization Program has helped reduce fiscal
disparities among provinces.
2.Promotion of National Unity: By supporting provinces in need, the program contributes

to a sense of shared responsibility and solidarity among Canadians.
3.Stability and Predictability: Revenue sharing mechanisms provide stable and predictable
funding for provincial governments, aiding in long-term planning and budgeting.
4.Investment in Development: Conditional transfers for infrastructure and development

projects facilitate investments in critical areas, fostering economic growth and prosperity.
120
References
1. Oates, W. E. (1972). Fiscal Federalism. Harcourt Brace Jovanovich.
2. Rodden, J. (2006). Fiscal Decentralization and the Challenge of Hard Budget Constraints. MIT Press.
3. Boadway, R., & Shah, A. (Eds.). (2009). Fiscal Federalism: Principles and Practice of Multiorder Governance. Cambridge
University Press.
4. Bird, R. M., & Vaillancourt, F. (Eds.). (2008). Fiscal Decentralization in Developing Countries. Cambridge University Press.
5. Martinez-Vazquez, J., & Timofeev, A. (Eds.). (2011). Decentralization in Developing Countries: Global Perspectives on the
Obstacles to Fiscal Devolution. Edward Elgar Publishing.
6. Breton, A., & Scott, A. (Eds.). (2016). The Economics of Federalism. Routledge.
7. Shah, A. (2007). Fiscal Federalism and Macroeconomic Governance: For Better or for Worse? World Bank Policy Research
Working Paper No. 4209.
8. Litvack, J. I., Ahmad, J., & Bird, R. M. (1998). Rethinking Decentralization in Developing Countries. World Bank.
9. Von Hagen, J. (Ed.). (2006). Fiscal Relations in Four Countries: Four Essays and a Report with Policy Recommendations.
Edward Elgar Publishing.
10.Martinez-Vazquez, J., & McNab, R. M. (Eds.). (2003). Fiscal Decentralization and Economic Growth: A Comparative Study of
China, India, South Africa, and Russia. Edward Elgar Publishing.
121
6.Tax Compliance
and Enforcement
(possibly skip)
122
7.Revenue
Forecasting and
Budgeting
135
Introduction
• Revenue Forecasting: involves predicting the future inflow of funds to the
government through various revenue sources.
• Importance:
• Foundation for Budgeting: Accurate revenue forecasts are the basis for preparing
government budgets and allocating public resources.
• Fiscal Planning: Forecasting revenues helps governments set realistic fiscal goals and
identify potential fiscal deficits or surpluses.
• Policy Formulation: Revenue forecasts aid policymakers in making informed

decisions regarding tax policies and expenditure priorities.
136
Key Elements of Revenue Forecasting
1.Historical Data Analysis: Examining past revenue trends and patterns to
identify historical growth rates and seasonality factors.
2.Economic Indicators: Considering economic indicators, such as GDP

growth, inflation rates, to assess their impact on revenue streams.
3.Tax Policy Changes: Anticipating the impact of proposed tax policy changes
on revenue collections.
4.External Factors: Assessing external factors, such as global economic

conditions and commodity prices, that can influence revenue generation.
137
Revenue Forecasting Methods
1.Time-Series Analysis: Using historical revenue data to project future
trends, accounting for seasonality and cyclical patterns.
2.Regression Analysis: Identifying relationships between revenue and

economic indicators to forecast revenue changes.
3.Delphi Method: (AKA “estimate-talk-estimate technique) Involving experts

and stakeholders in a structured forecasting process to reach a consensus
on revenue projections.
4.Simulation Modelling: Utilizing computer-based models to simulate

various scenarios and their impact on revenue.
138
Challenges in Revenue Forecasting
1.Economic Uncertainty: Unpredictable economic conditions can make
revenue forecasting challenging.
2.Policy Changes: Changes in tax laws and policies can have unpredictable
effects on revenue streams.
3.Data Limitations: Insufficient or unreliable data can hinder accurate

revenue predictions.
4.External Shocks: Unexpected events, such as natural disasters or economic

crises, can disrupt revenue projections.
139
Budget Preparation Process
1.Gathering Revenue Forecasts: Collecting revenue forecasts from various
departments and agencies.
2.Allocating Resources: Allocating resources based on revenue projections

to fund government programs and services.
3.Policy Prioritization: Determining policy priorities and budgetary

allocations based on revenue availability.
4.Legislative Approval: Seeking legislative approval for the proposed budget.
140
Ensuring Budgetary Discipline
1.Contingency Planning: Developing contingency plans to address
revenue shortfalls or unexpected expenditures.
2.Monitoring and Evaluation: Regularly monitoring revenue

performance and budget execution to ensure adherence to the
budget plan.
3.Public Accountability: Maintaining transparency and accountability in

budget execution to build public trust.
141
Case Study - Successful Revenue Forecasting
in Singapore
• Singapore, renowned for its strong fiscal discipline and economic stability, has
consistently demonstrated successful revenue forecasting practices. Accurate
revenue projections play a crucial role in facilitating effective budget planning.
• Key Factors Contributing to Successful Revenue Forecasting:

1.Data-Driven Approach: Singapore's revenue forecasting is based on a data-driven
approach that incorporates historical revenue trends, economic indicators, and
comprehensive data from various sectors of the economy.
2.Close Monitoring of Economic Indicators: The government continuously
monitors a wide range of economic indicators, such as GDP growth, consumer
spending, export trends, and employment. These provide valuable insights into
the health of the economy and its potential impact on revenue streams.
142
Case Study - Successful Revenue Forecasting
in Singapore
3. Robust Data Analytics: The government employs advanced data analytics tools
to analyze large datasets and identify patterns and correlations between
economic factors and revenue collections.
4.Proactive Tax Policy Management: Singapore implements a proactive approach
to tax policy management. The government regularly reviews tax laws and
policies, considering changes in the economic landscape and potential
implications on revenue generation.
143
Case Study - Successful Revenue Forecasting in
Singapore (cont.)
Case Study in Effective Tax Policy Management:
• In 2018, Singapore implemented a significant tax policy change, introducing
a GST rate increase from 7% to 9%. The decision was taken after careful
evaluation of the country's long-term fiscal needs and economic outlook.
• Before implementing the GST rate increase, the government conducted

thorough revenue forecasting exercises, considering various scenarios and
economic projections. The forecasting process involved close collaboration
between the Ministry of Finance and the Monetary Authority of Singapore.
• The revenue forecasting exercise factored in potential impacts on

consumer spending, business activities, and overall economic growth.
144
Singapore (cont.)
Accurate Forecast and Fiscal Stability:
• Singapore's rigorous revenue forecasting process, supported by comprehensive
data analysis and a deep understanding of economic trends, resulted in an
accurate projection of the revenue gains from the GST rate increase.
• The government's ability to accurately forecast the impact of the tax policy
change on revenue helped ensure fiscal stability and provided a strong
foundation for budget planning in subsequent years.
145
Singapore (cont.)
Benefits and Lessons:
• The successful revenue forecasting and proactive tax policy management in
Singapore have contributed to the country's sustainable fiscal position, enabling
the government to fund crucial infrastructure projects, social programs, and
economic development initiatives.
• The case study underscores the significance of data-driven decision-making, close
monitoring of economic indicators, and proactive tax policy management in
revenue forecasting and budget preparation.
146
References
1. Shah, A. (Ed.). (2007). Budgeting and Budgetary Institutions. The World Bank.
2. Melkersson, M., & Haas, J. L. (2018). Public Budgeting and Finance: Behavioral, Theoretical, and Technical Perspectives (6th
ed.). Jones & Bartlett Learning.
3. Zimmerman, J. L. (2014). Contemporary Public Budgeting (9th ed.). Routledge.
4. Rubin, I. S., & Melker, R. A. (2016). Forecasting in Public Budgeting and Financial Management. Routledge.
5. Joyce, P. G., Joyce, R. A., & Rist, C. (2014). Managing Public Expenditure: A Reference Book for Transition Countries. The
World Bank.
6. Diamond, J. (2019). Performance Budgeting in the Public Sector. Palgrave Macmillan.
7. Lienert, I., & Jung, H. S. (2017). Budget Institutions and Fiscal Performance in Low-Income Countries. IMF Working Paper
No. 17/16.
8. Holcombe, R. G. (2015). Advanced Introduction to Public Budgeting and Financial Management. Edward Elgar Publishing.
9. Posner, P. L., & Thomas, J. L. (2013). Budgeting and Financial Management for Nonprofit Organizations: Using Money to
Drive Mission Success. Wiley.
10.Poterba, J. M. (Ed.). (1994). Fiscal Institutions and Fiscal Performance. University of Chicago Press.
147
8.International
Aspects of Fiscal
Revenue Analysis
(possibly skip)
148
9.Case Studies
157
Case Studies in Fiscal Revenue Analysis
Analyzing Real-World Revenue-Related Challenges
and Solutions
• Examining case studies of countries facing revenue-related issues,
such as budget deficits, revenue shortfalls, or ineffective tax policies.
• Studying the strategies adopted to address these challenges and their

impact on fiscal sustainability and economic development.
158
Examining Successful Revenue Reforms in
Different Countries
1. New Zealand: In the late 1980s, New Zealand implemented significant tax reforms, known as the "New
Zealand Model." The reforms aimed to simplify the tax system, broaden the tax base, and lower tax
rates. The introduction of GST was a notable reform that improved revenue collection and reduced tax
evasion.
2. Chile: In the 1980s, Chile undertook tax reforms to modernize its tax system and increase revenue
efficiency. The implementation of a VAT system and the introduction of corporate income taxes
significantly improved revenue collection and reduced tax evasion.
3. Rwanda: Rwanda has implemented various tax reforms to enhance revenue collection and promote
economic growth. The country simplified its tax system, introduced electronic tax filing, and improved
tax compliance through taxpayer education and outreach programs.
4. United Kingdom: The UK undertook tax reforms to simplify the tax code and promote investment.
Reforms such as lowering the CIT rate and implementing tax incentives for R&D have improved
revenue collection and supported economic growth.
5. Denmark: Denmark implemented tax reforms to broaden the tax base and reduce tax evasion. The
country has a high compliance rate, partly due to efficient tax administration and a comprehensive
data-sharing system.
159
Examining Successful Revenue Reforms in
Different Countries
6. Colombia: Colombia has undertaken tax reforms to improve revenue collection and address tax
evasion. The implementation of a simplified income tax regime for small businesses and the use of
technology to enhance tax administration have contributed to increased revenue.
7. Kenya: Kenya has pursued tax reforms to enhance revenue collection and achieve fiscal sustainability.
The implementation of a digital tax system, improving taxpayer compliance through automated
processes, and expanding the tax base have been notable reform initiatives.
8. Sweden: Sweden's tax reform aimed to simplify the tax system, reduce tax avoidance, and enhance
revenue collection. The country introduced VAT and reduced income tax rates to attract investment
and promote economic growth.
9. Ghana: Ghana has undertaken tax reforms to improve revenue collection and modernize its tax
administration. The introduction of an e-filing system and efforts to improve tax compliance have
contributed to increased revenue.
10.Georgia: Georgia's tax reform focused on simplifying the tax system, reducing tax rates, and improving
tax administration. These reforms helped increase revenue collection and attract foreign investment.
160
Analyzing Key Factors Contributing to Success
1. Simplification of Tax System: Successful countries implemented tax reforms that simplified the tax system, making
it easier for taxpayers to understand and comply with tax laws. A simpler tax system reduces compliance costs for
businesses and individuals.
2. Broadening the Tax Base: By broadening the tax base, countries can capture more sources of revenue and reduce
reliance on a narrow tax base. This approach ensures a more equitable distribution of the tax burden and helps
generate additional revenue.
3. Lowering Tax Rates: Some countries lowered tax rates, particularly CIT rates, to attract investment and encourage
economic growth.
4. Implementation of Technology: The use of technology, such as e-tax filing and data analytics, enhances tax
administration efficiency and reduces opportunities for tax evasion.
5. Improving Tax Compliance: Successful countries focused on improving tax compliance through taxpayer education,
outreach programs, and simplified filing procedures. Educating taxpayers about their tax obligations fosters a
culture of voluntary compliance.
6. Efficient Tax Administration: Efficient tax administration plays a crucial role in successful revenue reforms. Effective
tax agencies ensure fair enforcement, timely processing of tax returns, and proper monitoring of compliance,
leading to improved revenue collection.
161
Relevance of Experiences in Different Economic
and Institutional Contexts
1. Cultural and Socioeconomic Factors: Different countries have unique cultural norms and
socioeconomic conditions that influence tax compliance behavior. Reforms must consider local
attitudes towards taxation and design strategies that align with the country's social fabric.
2. Economic Structure and Diversity: Countries with diverse economic structures may require
tailored reforms to address specific sectors and industries.
3. Legal and Governance Frameworks: The legal and governance frameworks of each country
influence the feasibility and implementation of tax reforms.
4. Political Will and Stability: Political stability and strong political will are crucial for successful
reforms.
5. Capacity and Resources: Countries with limited administrative capacity and resources may need
to phase in reforms gradually and prioritize critical elements that can be effectively implemented.
6. Regional and Global Context: Countries operating in regional or global economic blocs may need
to consider how tax reforms align with regional agreements and international tax standards.
162
Learning from Past Mistakes and Failures in
Revenue Management
• Venezuela's Fiscal Mismanagement: once a prosperous oil-rich nation, faced severe fiscal mismanagement in
recent years, leading to an economic crisis. Inadequate fiscal policies, excessive reliance on oil revenue, and poor
governance contributed to the country's fiscal woes.
• Consequences of Fiscal Mismanagement:
1. Economic Collapse: Venezuela experienced hyperinflation, leading to a collapse of its currency's value. The
mismanagement of fiscal policies, including excessive money printing, contributed to the hyperinflationary spiral.
2. Revenue Volatility: Over-reliance on oil revenue left Venezuela highly vulnerable to fluctuations in global oil prices.
A sudden drop in oil prices significantly reduced government revenue, exacerbating fiscal deficits.
3. Debt Default: Faced with declining revenue and mounting debt, Venezuela struggled to service its external
obligations, eventually leading to debt defaults and impaired credit ratings.
4. Social Unrest: The deteriorating economic conditions resulted in widespread poverty, food shortages, and
deteriorating living standards. Social unrest escalated as citizens protested against the government's
mismanagement.
5. Capital Flight and Investment Decline: Investor confidence eroded, leading to capital flight and a significant decline
in foreign direct investment.
6. Reduced Public Services: Inadequate fiscal policies and fiscal mismanagement led to reduced funding for critical
public services, such as healthcare, education, and infrastructure development.
163
10.Emerging
Trends and
Future Outlook
(maybe move to
end of Day 2)
166
Group Discussion
Create small teams to discuss issues and propose solutions
173
Group Discussion Questions on Fiscal
Revenue Analysis
1.What are the key components of fiscal revenue analysis, and why is it important for
governments and policymakers?
2.How can revenue forecasting models help governments make informed decisions and
plan for the future effectively?
3.Discuss the challenges and uncertainties in revenue forecasting, especially in the context
of economic fluctuations and external factors.
4.How does tax policy and changes in tax rates influence revenue collection? What are the
trade-offs between raising revenue and promoting economic growth?
5.Explore the impact of digitalization and the rise of the digital economy on revenue
collection. How can governments adapt taxation policies to address these changes?
6.Discuss the role of revenue diversification in mitigating revenue volatility and ensuring
fiscal stability. Provide examples.
174
Group Discussion Questions on Fiscal
Revenue Analysis
7. How does fiscal federalism impact revenue sharing among different levels of
government? What are the challenges and benefits of revenue sharing arrangements?
8.Examine the impact of global economic trends, such as trade tensions and geopolitical
risks, on revenue forecasting and fiscal revenue analysis.
9.Explore the role of fiscal revenue analysis in addressing social and economic inequality.
How can governments design revenue policies to promote inclusive economic growth?
10.How can governments use revenue analysis to allocate resources effectively for public
projects and infrastructure development?
11.Evaluate the importance of public engagement and transparency in revenue policies.
How can governments foster public trust in fiscal management?
175
Group Discussion Proposed Short Answers
1. Answer: Fiscal revenue analysis involves the examination and evaluation of government revenue sources,
forecasting revenue streams, and understanding the impact of tax policies on revenue collection. It is
essential for governments and policymakers to make informed fiscal decisions (e.g. budget planning, public
spending).
2. Answer: Revenue forecasting models help governments anticipate future revenue streams, allowing them to
plan for public projects, social welfare programs, and infrastructure development effectively. These models
consider economic variables, tax policy changes, and external factors to provide valuable insights for fiscal
decision-making.
3. Answer: Revenue forecasting faces challenges due to economic uncertainties, fluctuations in economic
indicators, and external shocks like pandemics or trade disruptions.
4. Answer: Tax policy plays a crucial role in revenue collection. Changes in tax rates, exemptions, and
deductions influence taxpayer behavior and revenue generation.
5. Answer: Digitalization has transformed business models and created challenges in taxing digital services and
cross-border transactions.
6. Answer: Revenue diversification helps mitigate revenue volatility by reducing dependence on a single
revenue source. It allows governments to create a more balanced and stable revenue base.
176
Group Discussion Proposed Short Answers
7. Answer: Fiscal federalism impacts revenue sharing among different levels of government. Balancing the
distribution of revenue to ensure fairness, autonomy, and accountability among various tiers of government
is a challenging task.
8. Answer: Global economic trends, such as trade tensions and geopolitical risks, can create uncertainties in
revenue forecasting. Governments need to consider these external factors while analyzing revenue
projections and making fiscal policy decisions.
9. Answer: Fiscal revenue analysis can play a significant role in addressing social and economic inequality.
Governments can use progressive taxation and targeted social spending to promote inclusive growth and
reduce income disparities.
10.Answer: Revenue analysis allows governments to allocate resources efficiently for public projects and
infrastructure development based on revenue projections. It ensures that projects are adequately funded
and aligned with fiscal goals.
11.Answer: Public engagement and transparency in revenue policies foster public trust in fiscal management.
Governments can hold public consultations, provide clear explanations of tax policies, and disclose revenue
forecasts to build confidence among citizens.
177
• Identifying Challenges and Trends: in this part of
the workshop, participants should engage in a
group discussion to identify and analyze current
fiscal revenue challenges and trends in the local or
global context. These challenges may include
changes in the economy, shifts in taxation patterns,
Current Fiscal or emerging issues affecting revenue collection.
Revenue Issues • Proposing Solutions: As part of the group

discussion, participants are encouraged to propose
potential solutions to address revenue-related
issues.
• Fostering Critical Thinking and Teamwork: The

group discussion exercise aims to foster critical
thinking and teamwork skills.
178
Current Fiscal Revenue Issues
Identifying Challenges and Trends
1. Economic Recovery Post-Pandemic: Many countries are facing challenges in revenue generation due to the
COVID-19 pandemic. The recovery process varies across regions, leading to uncertainty in revenue forecasts
and fiscal planning.
2. Rising Public Debt: The pandemic-induced economic downturn has led to increased government spending.
As a result, many countries are grappling with higher public debt levels.
3. Changing Consumption Patterns: Changes in consumer behavior during the pandemic have affected tax
revenue. For example, increased e-commerce activities have altered traditional tax bases, requiring
adjustments in taxation policies.
4. Digitalization and Taxation: The rise of the digital economy has posed challenges in taxing digital services
and cross-border transactions.
5. Climate Change and Green Taxes: Countries are increasingly introducing environmental taxes and carbon
pricing to mitigate climate change. Implementing green taxes presents challenges in revenue forecasting,
considering the potential behavioral responses and impacts on specific industries.
179
Identifying Challenges and Trends (cont.)
6. Global Corporate Tax Reforms: Ongoing discussions and agreements on global minimum corporate tax rates
may impact revenue collection for countries, especially those heavily reliant on corporate tax revenue.
7. Tax Evasion and Base Erosion: Addressing tax evasion and base erosion remains a persistent challenge.
Countries are focusing on improving tax administration, enhancing information sharing, and implementing
measures to combat aggressive tax planning by multinational corporations.
8. Infrastructure and Investment Needs: Meeting infrastructure and investment demands while ensuring fiscal
sustainability is a balancing act. Governments must carefully plan revenue streams to fund critical projects
without compromising long-term fiscal health.
9. Demographic Shifts: Aging populations in many countries are increasing public expenditure on healthcare
and pensions. Adequate revenue forecasting is vital to ensure financial sustainability and avoid fiscal strain.
180
Identifying Challenges and Trends (cont.)
10.Revenue Collection Efficiency: Improving revenue collection efficiency and reducing tax leakages are
priorities for many governments.
11.Global Trade and Tariff Changes: Shifting global trade dynamics, such as trade tensions and tariff changes,
can influence revenue from international trade.
12.Social and Economic Inequality: Addressing social and economic inequality requires well-targeted fiscal
policies and redistribution measures.
13.Digital Financial Services: The growing popularity of digital financial services, such as cryptocurrencies,
challenges traditional revenue collection methods.
14.Public Engagement and Trust: Gaining public trust and support for fiscal policies relies on transparent
revenue forecasting and effective communication.
181
Proposing Solutions
1. Economic Diversification: Encourage economic diversification to reduce dependency on volatile
revenue sources. Governments can support the development of non-traditional sectors and innovative
industries, which can contribute to a more stable revenue base.
2. Invest in Technology and Data Analytics: Governments should invest in modern technology and data
analytics to improve revenue forecasting accuracy. Leveraging big data and advanced analytics can
enhance revenue collection efficiency and identify potential areas of tax evasion.
3. Sustainable Fiscal Policies: Adopt sustainable fiscal policies that prioritize long-term fiscal health.
Policymakers should focus on reducing public debt levels, setting clear fiscal targets, and ensuring that
revenue and expenditure plans align with long-term economic goals.
4. Digital Taxation Frameworks: Develop comprehensive digital taxation frameworks to capture revenue
from the growing digital economy. Collaboration with international partners can help ensure a fair and
consistent approach to taxing digital services and cross-border transactions.
182
Proposing Solutions (cont.)
5. Climate-Focused Fiscal Policies: Implement green fiscal policies to support sustainable development
and combat climate change. These measures can encourage eco-friendly practices and generate
revenue while promoting environmental responsibility.
6. Collaboration on Global Tax Reforms: Engage in international discussions and agreements on global
tax reforms, including minimum corporate tax rates. Cooperation with other countries can help prevent
base erosion and profit shifting while ensuring a level playing field for all businesses.
7. Effective Tax Administration: Strengthen tax administration and enforcement to combat tax evasion
and improve tax compliance. Investment in tax administration infrastructure, training of personnel, and
use of technology can boost revenue collection efficiency.
8. Public-Private Partnerships (PPPs): Explore PPPs for financing critical infrastructure projects can help
governments mobilize resources and efficiently deliver public services without straining fiscal budgets.
183
9. Investment in Education and Healthcare: Focusing on education and healthcare can lead to a
healthier and more skilled workforce, driving economic growth and increasing future tax revenues.
10.Transparency and Communication: Promote transparency in revenue forecasting and fiscal policies.
Governments should communicate forecasting assumptions, methodology, and outcomes to build
public trust and understanding.
11.Scenario Planning and Contingency Measures: Integrate scenario-based forecasting to prepare for
potential economic uncertainties. Policymakers should develop contingency plans to respond promptly
to changing revenue situations.
12.Taxpayer Education: Conduct taxpayer education campaigns to raise awareness about tax compliance
and the importance of paying taxes. Informed taxpayers are more likely to fulfill their tax obligations
willingly.
184
13.Long-Term Vision and Policy Continuity: Develop a long-term vision for fiscal policies and avoid
abrupt changes. Consistent policies can instil confidence in investors and taxpayers, leading to stable
revenue streams.
14.Research and Development Incentives: Offer tax incentives for research and development activities
to foster innovation and stimulate economic growth, leading to higher tax revenues in the future.
185

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Fiscal Revenue

DAY 1 – 14th of August 2023

Manila, Philippines, August 12-14, 2023 3

• Public finance vs public economics:

• 2. A dynamic academic field

The Allegory and Effects of Good Government

•Fiscal policy is the key governments’ instrument:

–Improving efficiency of tax administration through training and retraining;

• Composition and quality of expenditure:

▪ ROSEN, Harvey, 2008; “Public Finance”; 5th Edition, McGraw-Hill, USA.

▪ MUSGRAVE, Richard, MUSGRAVE, Peggy, 1989; “Public Finance in Theory

• It is a crucial component of public finance, enabling the government

• Without adequate revenue, the government may struggle to meet its

3. Fiscal revenue influences the government's ability to pursue economic

4. Fiscal revenue collection and expenditure are integral to achieving fiscal

• Adequate revenue allows the government to invest in infrastructure, education,

• By adjusting tax rates and government spending during economic contractions,

• 1.Distinction regarding the economic nature of public revenues: Current VS

• 2.Distinction regarding the degree of effectiveness of public revenues: Effective

• 3.Distinction regarding the types of (actual) public revenue:

• Direct taxes are levied directly on individuals' income and

• The choice of tax instruments and their rates significantly impact

• These revenues include user fees for government services like

• Non-tax revenues are diverse and may vary in significance across

• These inflows often target specific development projects,

• It involves the assessment of revenue trends, potential sources of

• Revenue projections are a critical component of budget formulation,

• Revenue trend evaluation facilitates more accurate revenue

• Higher revenue levels provide the government with more resources to

• Conversely, lower revenue levels may necessitate budget constraints and

• Revenue analysis enables policymakers to align spending priorities with the

• A growing economy typically generates higher revenue through increased

• Additionally, fiscal revenue influences inflation and employment levels.

• Through fiscal policies, the government can influence aggregate demand

Source: Barros, Miranda Sarmento, Jalles (2023)

Singapore 13 0.58 22.47 9.47 Korea, Rep. 27 0.99 27.34 0.34

India 17 0.82 20.63 3.63 Fiji 24 0.92 26.07 2.07

• When expenditures exceed revenue, a fiscal deficit occurs, which

• Accumulating fiscal deficits over time can lead to an increase in public

• Revenue analysis helps in understanding the impact of fiscal deficits on

• Policymakers can use revenue analysis to design effective countercyclical fiscal

• Understanding revenue elasticity and buoyancy helps policymakers make

iv. Transparency (and political responsibility)

vi. Financial effectiveness

-Restrictions of economic, social and political nature

• Striking a balance between equity and efficiency is a central challenge

•Excessive burden = the loss of well-being (inefficiency) generated by taxes.

There are intentionally distorting taxes:

• At very low tax rates, revenue is minimal, as there is little to tax.

Dupuit wrote: “If a tax is gradually increased

• Methods include: statistical techniques, data visualization tools, and

• Statistical measures, such as averages, ratios, and trend analysis,

• Some common revenue ratios include tax-to-GDP ratio, tax-to-total

• Comparative analysis of these ratios allows policymakers to

• This tax gap is important:

Source: Bachas et al., 2021 using ICTD/UNU-Wider Data.

Source: Bachas et al., 2021 using ICTD/UNU-Wider Data.

• Governments rely on tax authorities and other agencies to collect and

• However, factors like tax evasion, informal economy activities, and

• Addressing these challenges is essential for producing reliable and timely

• Ethical considerations in taxation include progressivity, which ensures that

• Additionally, tax policies should avoid discrimination and be designed to

• Governments should be transparent in communicating tax policies, tax