Dynamic Scoring

FULL TITLE: Dynamic Scoring of Tax Reforms in Real Time

This project measures the fiscal and redistributive effects of hypothetical tax reforms implemented in the 28 EU Member States, taking into account the behavioural effects of labour market adjustments and the economy-wide reaction to tax policy changes (i.e. the so-called second-round effects).

In particular, a real-time dynamic scoring exercise is developed by linking the microsimulation model EUROMOD with a vector autoregressive model, including fiscal and labour market variables, in order to perform fiscal forecasting analysis. Our results suggest that cuts in personal income taxes resulted in medium-term increases in output and employment; however, the second-round revenue impact is found to be small relative to the first-round microsimulation results. Overall, the results suggest that the established link enhances the accuracy of classical fiscal and distributional impact assessments of the proposed tax reforms.