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1 MEERJARENPLAN STEUNPUNT STEUNPUNT FISCALITEIT EN BEGROTING Promotor-coördinator: Carine Smolders Leden van het consortium: Faculty of Business Administration and Public Administration Voskenslaan 270 B Ghent Faculty of Economics and Applied Economics Naamsestraat 69 B-3000 Leuven dr. C. Smolders Promoter - coordinator Faculty of Economics and Business Administration VITO Hoveniersberg 24 Boerentang 200 B-9000 Ghent B-2400 Mol 1

2 Table of contents 1. Introduction The members of the Consortium The Consortium s objectives Division of tasks and resources Multi annual programme and budget Structure of the research programme of the Consortium Multi-annual research programme considering the A-tracks track A1: fiscal federalism in a Belgian context track A2: regional taxes as a policy instrument track A3: modelling tax impact track A4: budget models Multi-annual research programme considering the B-projects Suggestions for the use of the budget for ad hoc requests Management Communicatie met de opdrachtgever Kwaliteitsbewaking Het HRM-beleid Het financieel beheer van het Steunpunt Meerjarenbegroting... Error! Bookmark not defined.44 Appendix

3 List of the tables TABEL 1 THE COMPOSITION OF THE CONSORTIUM... 4 TABEL 2 DATABASES TO BE DEVELOPED/MAINTAINED... 7 TABEL 3 DIVISION OF TASKS OF THE CONSORTIUM... 8 TABEL 4 BUDGET ALLOCATION TO THE PARTNERS... 8 TABEL 5 A-TRACKS TABEL 6 GENERAL OVERVIEW OF THE PROJECTS OF TRACK A TABEL 7 GENERAL OVERVIEW OF THE PROJECTS OF TRACK A TABEL 8 GENERAL OVERVIEW OF THE PROJECTS OF TRACK A TABEL 9 GENERAL OVERVIEW OF THE PROJECTS OF TRACK A TABEL 10 ALLOCATIE VAN HET BUDGET VOOR COÖRDINATIE, VALORISATIE EN ADMINISTRATIE... ERROR! BOOKMARK NOT DEFINED. TABEL 11 ALLOCATIE VAN HET BUDGET VOOR ONDERZOEK... ERROR! BOOKMARK NOT DEFINED. TABEL 12 GEDETAILLEERD OVERZICHT VAN DE KOSTENPROFIELEN VOOR PERSONEELSKOSTEN... ERROR! BOOKMARK NOT DEFINED. TABEL 13 OVERZICHT VAN DE KOSTENSTRUCTUUR... ERROR! BOOKMARK NOT DEFINED. 3

4 1. Introduction 1.1. The members of the Consortium FISC joins researchers from 3 institutes for higher education (KULeuven, Ghent University and University College Ghent) and one partner institute (VITO). The Research Centre 1 is coordinated at University College Ghent, Department of Business Studies and Public Administration.The promoters, their current functions and the field of expertise are summarized in table 1. Tabel 1 The composition of the Consortium Partner Current function Field of expertise Catholic University Leuven A.Decoster* Prof. in economics Public economics S. Proost* Prof. in economics Environmental economics, energy economics and transport economics J. Konings* Prof. in economics Labor Economics, firm location choice and taxation, competition policy, trade policy and the market power of firms, the economics of emerging markets A. Haelterman* Prof. in tax law Income tax, corporate tax, indirect taxes T.Van Puyenbroeck Prof. in economics Public economics, public finance Ghent University F. Heylen* Prof. in economics Macroeconomics: fiscal policy, long-run growth, labour market performance G.Everaert Prof. in economics Econometrics University College Ghent C. Smolders* 2 Prof. in economics Tax economics, inheritance and housing taxes,local taxes, tax compliance B. De Groote* Prof. in tax law Fiscal law, fiscal planning, inheritance & estate tax S.Goeminne* Prof. in economics Political analysis of local taxes F.Naert Prof. in economics Public finance K.Inghelbrecht Prof. in economics Financial markets VITO I.Mayeres Senior researcher Transport economics, environmental economics FISC largely builds on the experience of the Steunpunt Fiscaliteit en Begroting As such, the members acknowledge the surplus value of a partnership consisting of researchers from different institutions, with different backgrounds. The specific composition led to interesting synergies and to refreshing mind-sets. The confrontation of expertise from different sub disciplines (e.g. labor versus housing market expertise; macro versus micro approaches, effect of taxes versus the cost to administer these taxes) enables the current Consortium to look at problems from different angles. The unique mix of competencies allows to organize national conferences attracting a much broader audience of public servants, policy makers and academics. Compared to the composition of the former Steunpunt Fiscaliteit en Begroting, the team is extended with econometricians and micro oriented economists. As a result, the Consortium is better prepared to implement the best and newest estimation techniques for panel data and time series showing structural breaks. It will also be competent to adopt state of the art techniques in the field of micro simulation modelling. 1 Hereafter refered to as FISC. 2 C.Smolders is also appointed at Ghent University as guest professor. 3 *= Member of the current Steunpunt Fiscaliteit & Begroting. 4

5 In addition, a new Partner institute is engaged. With more than 600 highly qualified employees, VITO is the largest Flemish technological research organisation. Energy, the environment, sustainable development and technological innovation are important research themes, perfectly complementing the corresponding areas of competence of the Flemish government. In this Consortium, VITO is specifically engaged to establish models for traffic taxes. A more detailed presentation of the Consortium members is given in appendix 1. Finally, the Consortium obtained the support of a group of international experts. These experts will be invited to comment research reports and to be keynote speaker on conferences organised by the Consortium: Robin Boadway is a highly estimated Professor in public economics from Queens University, Ontario, Canada. From he was the editor of the Journal of Public economics and he is the current president of the International Institute of Public Finance. Robin Boadway has published seminal articles concerning fiscal equalisation, intergovernmental grants, taxation of wealth, taxes and redistribution. He is widely recognised for his expertise in the field of fiscal federalism. We expect his insights to be particularly useful for tracks A1 (fiscal federalism in a Belgian context) and A3b2 (micro simulation models: inheritance tax). Massimo Bordignon gained a first degree in Philosophy at the University of Florence; he then moved to the UK to attend postgraduate studies in Economics (MA, Essex; PhD, Warwick). His research interests are Welfare Economics, Public Economics and Political Economics. He is the author of three books, and has published extensively in many national and international scientific journals. He is associated editor of the Giornale degli Economisti, the Journal of Economics and Finanzarchiv. He is currently full professor of Public Economics at the Catholic University of Milan, where he is also the Director of the Master in Public Economics and of the Graduate School in Economics and Finance of Public Administration. He worked as a consultant for several national and international institutions and acted as a member of several technical commissions within the Italian Government. He is a member of the scientific committee of the High Commission on Fiscal Federalism (Ministry of Treasury) and President of the Committee on Public Expenditure of the Autonomous Province of Trento. We expect his insights to be particularly useful for tracks A1 (fiscal federalism in a Belgian context) and A3b2 (micro simulation models: inheritance tax). Anne Laferrère is currently appointed at the INSEE and works as an associate researcher at CREST& IRDES in France. Anne Leferrère is an expert in family economics and housing economics. In addition, she published much-appreciated articles concerning wealth transfers in France. For some recent studies, she has been working with SHARE data, which will also be exploited in project A3b2 (micro simulation models: inheritance tax) and A2b (inheritance tax reform) and A2a (regional taxes, housing and sustainable growth). Motohiro Sato is Professor of Economics at Hitotsubashi University in Japan. In 1999, he received the Curtis Award for his PhD on fiscal federalism and fiscal decentralization. Since then, he has been the author of a large list of articles on fiscal externalities in federal systems, time consistency in federal systems, intergovernmental transfers, fiscal coordination, pension systems and subsidies as instruments for redistribution. He is referee for Journal of Public Economics, International Tax and Public Finance, Journal of Health Economics, Journal of Urban Economics and Finanz Archiv. Collaborating with Professor Sato might be of great value for tracks A1 (fiscal federalism in a Belgian context) and A3c (General Equilibrium Model for growth and employment based on the micro simulation output). Holly Sutherland is a Research Professor at the Institute for Social and Economic Research, University of Essex and Visiting Professor at the Centre for Analysis of Social Exclusion at the London School of Economics. She has more than 25 years of experience in designing, building and using tax-benefit micro simulation models and has coordinated six international collaborative projects related to EUROMOD, the model for the European Union. She has coauthored/edited five books on micro simulation modelling and published widely in economics and social policy journals. Her research interests include the gender effects of redistribution policy and child poverty measurement and analysis. Given the importance of micro simulation models in track A3, we look forward to meet and discuss research output with Professor Sutherland. Cathal O Donoghue is currently engaged as head of the Rural Economy and Development Programme in Ireland.Her main research interest is in the development and application of analytical tools to aid the design, evaluation and improvement of public policy, particularly using micro simulation modelling as a methodology. She have published 68 peer reviewed journal articles, book chapters as well as 4 books and monographs. She has supervised 14 PhD students to completion since Most important for the research of track A3, she is now President of the International 5

6 Microsimulation Association She has acted as an advisor in the area of policy modelling to the Brookings Institution, the OECD, World Bank, Ukraine, Irish and UK Governments, European Commission, UNDP, UNICEF, Inter- American Development Bank, Public The Consortium s objectives The aim of this Consortium is sixfold. - we aim to develop evidence based and theoreticaly embedded socio-economic policy evaluation tools. Today, like in many other countries the Flemish government lacks tools to evaluate fiscal policies ex post. In addition, the scientific state of the art concerning the use of quantitative models as a tool for ex ante policy preparation and simulation of outcomes has not yet been translated into daily practice. As such, this project is a coordinated effort to develop proper socio-economic policy evaluation tools for Flanders based on micro and macro data. More in detail FISC aims to invest in fundamental & applied research to: examine the marginal cost of public funds and estimate the vertical and horizontal imbalances between the federal and regional governments (track A1: S.Proost. & A. Decoster & T. Van Puyenbroeck) further the insights in the design of solidarity mechanisms appropriate for the Belgian constitutional context (track A1: S.Proost. & A. Decoster & T. Van Puyenbroeck) understand the effects of differences in fiscal capacity between the regions (track A1: S.Proost. & A. Decoster & T. Van Puyenbroeck) confront the Belgian model of intergovernmental financial relations with the optimal model and formulate potential improvements (track A1: S.Proost. & A. Decoster & T. Van Puyenbroeck) provide insights concerning the opportunities to reform personal income tax, inheritance taxes, taxes on gifts or bequests, estate taxes and stamp duties to stimulate homeownership (track A2a; C.Smolders, S.Goeminne, B.De Groote) evaluate current aspects of the region s fiscal instruments adopted to stimulate sustainable consumption of housing, cars and other goods (regarding effectiveness-efficiency-implementation costs-tax payers acceptance- interactions between fiscal instruments) (track A2a; C.Smolders, S.Goeminne and track A3a2; I.Mayeres) develop feasible reform plans for the inheritance taxes, taking into account the effects on tax revenues, fiscal compliance and juridical implications (track A2b; A. Haelterman, B.De Groote) construct performing models to predict the region s tax revenues from inheritance and gift taxes and stamp duties to optimize the budgeting process; (track A3a1; C.Smolders, K. Ingelbrecht & G. Everaert) construct performing models to predict the region s tax revenues from traffic taxes (track A3a2: Inge Mayeres) develop a micro simulation model that allows to predict the effects of potential reforms in the income tax and the most important regional taxes (track A3b1; A. Decoster & S.Proost and track A3b2;C.Smolders & B.De Groote) refine the existing GEM that relates public finance to economic growth and employment, using input from the micro simulation models constructed by the other Consortium partners (track A3c: F. Heylen) develop a model able to predict the impact of macro-economic developments on the fiscal stance of the government, with special attention to the implications for the fiscal rule (track A4: S.Proost & A. Decoster) evaluate the way the existing business taxes affect entrepreneurship in the Flemish Region (B-project: A. Haelterman & J. Konings) - FISC will provide clearcut policy recommendations. Belgium is in the middle of an important transformation process, which will lead to adaptations of the Special Financing Law that largely determines the fiscal and financial relations between the Federal state and the Regions. FISC wants to feed this process by translating the main insights from fiscal federalism literature into clear cut recommendations concerning the distribution of taxing powers over the governments and concerning equalising grants systems. In addition, policy recommendations will be provided that concern specific improvements in tax laws (e.g. for the income taxes, property taxes, stamp duties, inheritance taxes, road pricing) or global tax reform proposals. 6

7 - FISC will invest in the creation of new databases and extend existing ones; see Table 2 for an overview. More specifically we aim to construct databases for the most important taxes. Next to time series of current macro data, we aim to systematically feed a micro database. Having longitudinal micro data for a panel of citizens, is crucial for the estimation of reliable tax elasticities. These in turn are needed to evaluate tax reforms. Also, they are important for policy evaluation. Today the information is highly fractionated. Micro data in general are exploited only for individual studies. The purpose is to screen existing household panels (SILC, PSHB and SHARE) and to construct a representative sample from administrative data (e.g. from income tax files) which can be used for regularly evaluations.the Consortium will consult the federal Ministry of Finance and the regional taxing authorities to obtain fiscal data for panels of tax payers. After finishing a project, promoters will invest in transferring databases to the Administration in an appropriate format. Tabel 2 Databases to be developed/maintained Track/project Type of data A3a:forecasting models for regional tax revenues Time series for monthly tax revenues; growth rates; mortgage rates; inflation rates; average housing prices; financial assets held by the citizens A3b1 & A3b2: micro simulation models Panel data on income tax and inheritance taxes, based on administrative data, household surveys (SILC-PSHB-SHARE) A3c: macro models Time series of macro-economic aggregates A4: budgetary models Time series of regional tax revenues, income from the Special financing Law, data input from the studies from tracks A3a,A3b and A3c - FISC will provide ad hoc advice on request. Each year a part of the budget is fixed for the principal s ad hoc requests (cfr. part 2.10 of the Call). The budget will be spent to assist the government while preparing new bills. It might equally be spent to finance studies investigating the sovereignty of the Flemish government vis-a-vis the European and the Federal law for specific reform proposals. It can also be spend to finance a stay of a visiting expert. Finally, it will be spent for delimited requests for data or effect studies. The Consortium commits itself to punctually coping with these kinds of requests. Members of the Consortium worked out specific proposals of scientific services which could be guaranteed. We refer to paragraph 3.5 for further detail. - FISC will engage in knowledge dissimination: the Consortium will present research results at international academic conferences. It will organise national conferences for a broader audience. Research outcome and policy recommendations will be the subject of discussions with policy makers and civil servants. Researchers will be stimulated to participate to discussion groups at their universities and present their methodology and results on a regular basis. - FISC will set up or participate in national and international networks: Today, most of the FISC promoters are engaged in international networks. This has some definite advantages related to datacollection (e.g. SHARE database) or in case comparative analysis is asked for (e.g. comparative study of inheritance law in EU-countries). It can also smooth the implementation of state of the art methodologies (e.g micro simulation models, General Equilibrium Models;...). FISC will further the efforts to strengthen these networks and will equally invest in exchanging knowledge with other Steunpunten, with the study hive of the Flemish government (Vlaamse studiedienst), with the research staff of the National Bank of Belgium and the SERV and PLANBUREAU. For the projects related to housing taxes, the Steunpunt Wonen will be contacted regularly. Cooperation with the Steunpunt Bestuurlijke Organisatie Vlaanderen and with the Steunpunt Regionale economie is guaranteed. 7

8 1.3. Division of tasks and resources Tabel 3 Promoter Division of tasks of the Consortium Fundamental & applied research Policy advice Construction of databases Ad hoc assignments K.U.Leuven A.Decoster X X X X S. Proost X X X X J. Konings X X X X T.Van Puyenbroeck X X X X A. Haelterman X X X X Ghent University F. Heylen X X X X G.Everaert X X X X University College Ghent C. Smolders X X X X X B. De Groote X X X X S.Goeminne X X X X F.Naert X X X X K.Inghelbrecht X X X X VITO I.Mayeres X X X X 0 gives an overview of the tasks of the partners and promoters of FISC. Dissemination of the results 0 shows the part of the budget allocated to the Consortium partners. As will be explained in Part 2, only A-tracks are allocated in the budget. The b-projects are free to choose by the Government. For these research proposals ,95 euro is available after the allocation of the general expenses and the A-tracks. Tabel 4 Budget allocation to the partners budget allocation to the partners total % University College Ghent , , , , ,59 50,64 Ghent University , , , , ,00 8,09 Catholic University Leuven , , , , ,00 33,28 VITO , , ,00 8,00 total , , , , ,59 100,00 yearly budget balance 888, , , ,49 740,45 budget to be allocated to b-projects , , , ,95 total budget , , , , ,00 8

9 2. Multi annual programme and budget 2.1. Structure of the research programme of the Consortium Within this Consortium, the different research tracks will be organised as follows: - A-tracks: these research tracks will cope with research problems leading to fundamental and/or applied research, which necessitates a longer research horizon. A-tracks cluster related themes that ask for a research period equalling at least three researcher/year/track. These topics are suitable for PhD-research and are related to very important challenges the Flemish government will be facing during the next legislature. The Consortium anticipates four A-tracks: A1: fiscal federalism in a Belgian context A2: regional taxes as a policy instrument A3: modelling tax impact A4:budget models - B-projects: we give the government the opportunity to choose some additional projects, which in general are research proposals covering budgets for 1 year. These will be chosen by the government at the first meeting of the Steering Comittee Multi-annual research programme considering the A-tracks The multi-annual research programme contains the tracks concerning the years Tabel 5 A-tracks A- TRACKS PROMOTOR Institute A1 FISCAL FEDERALISM IN A BELGIAN CONTEXT SOLIDARITY MECHANISMS/ MCPF/ASSESMENT CURRENT SET UP TAXING POWERS A2 REGIONAL TAXES AS A POLICY INSTRUMENT A2a REGIONAL TAXES,HOUSING AND SUSTAINABLE GROWTH A2b INHERITANCE TAX REFORM A3 MODELLING TAX IMPACT A3a1 FORECASTING MODELS FOR REGISTRATION FEES & INHERITANCE TAXES S.PROOST/ A.DECOSTER x x KUL C.SMOLDERS/ S.GOEMINNE x x x x HOGENT A.HAELTERMAN/ B.DE GROOTE x x KUL+HOGENT C.SMOLDERS/ G.EVERAERT/ K.INGELBRECHT/ x x HOGENT+UG A3a2 MODELLING THE EFFECTS OF THE TRAFFIC TAX REFORM I.MAYERES x x VITO A3b1 MICROSIMULATION MODELS: INCOME TAX A3b2 MICROSIMULATION MODELS: INHERITANCE TAX A.DECOSTER/ S.PROOST x x x x KUL C.SMOLDERS/ B. DE GROOTE x x HOGENT A3c GEM GROWTH& EMPLOYMENT BASED ON MICROSIMULATION OUTPUT F.HEYLEN x x x UG A4 BUDGET MODELS BUDGET RULES & BUDGET MODELS A.DECOSTER/ S.PROOST x x x x KUL 9

10 track A1: fiscal federalism in a Belgian context Tabel 6 General overview of the projects of track A1 Title Partner Solidarity mechanisms/mcpf/assessment current set up taxing powers Total budget track A KUL PROOST & DECOSTER &T. VAN PUYENBROECK Paragraph in the Call Project : Fiscal Federalism in a Belgian context Research questions There are 3 related research questions: A Research into the solidarity mechanisms in federal states: how do they function, how do they perform and how did they come about? B Role of the Marginal Cost of Public Funds (MCPF) in allocating fiscal capacities among different government levels C Assessment of the current institutional set up in Belgium: are taxation powers and expenditure responsibilities allocated at the right level and what reform proposals make sense? Literature & theoretic model Economic aspects of federalism have been studied widely (see synthesis in books by Ahmad & Brosio (eds., 2006) and Boadway & Shah (2009)). So why is there a need to study the case of Belgium more in particular? There are 3 good reasons for that. The first specificity is that the Belgium federation involves only 3 regions. This matters because the behaviour and outcomes to be expected could be very different with 3 regions from the standard case of the literature where the basic assumption is that many regions behave non-cooperatively: every region optimizes its behaviour, given the behaviour of all the others. When there are only a few regions, every region will be more aware of its impact on the other region and bargaining and cooperative behaviour may be a more natural outcome. The second reason is related: in Belgium the federal parliament consists of representatives that are elected in their constituency, this combination with low interregional mobility implies that the representatives mainly represent the interests of the region rather than those of the federation. The third reason is the asymmetry in the regional diversity: one region hosts the capital and the institutional framework consists of partly overlapping economic and cultural competences so that some regions are not homogeneous culturally. Therefore, any application of standard principles of fiscal federalism needs to take on board these 3 specificities of the Belgian context. A. For the comparison of solidarity mechanisms, we can partially rely on the literature (see Boadway & Shah (2009) and Boadway (2007)). What is needed is to select criteria for the performance of the different systems and an adaptation to the particularities of the Belgian system with only a few regions. Obvious criteria for the comparison of different systems are equity (is ex post welfare distribution more equitable than the ex ante welfare distribution?), efficiency (what is the overall/gain loss in economic welfare associated to the operation of the system?) and finally stability-acceptance of the mechanism (is there no constant demand to renegotiate the mechanism?). Equity needs to be further defined as correction for horizontal differences in fiscal capacity so that comparable households have access to the same basic needs but also at the interpersonal level (transfers from poor to rich). The solidarity mechanism can also be seen as a long-term contract between different regions (cfr. Drèze proposal) and it is useful to understand what factors determine this type of contracts. What is the role of number of regions, relative size of regions, ex ante distribution of income between regions, mobility, macro-economic risks...? The idea is here to use a more traditional political economy model where citizens vote in a two-step approach (step 1: elect regional representatives, step 2: region representatives decide on the federal mechanism. This allows studying the interaction between the intraregional redistribution mechanisms and the interregional redistribution mechanism (see Lockwood (2008) and Gordon & Cullen (2011, forthcoming)). The outcome of this task is an assessment of the merits of different interregional redistribution models in a Belgian 10

11 context. It concerns its performance according to the selected criteria but also its institutional feasibility given the specificities of the Belgian context. B. The role of the MCPF in the allocation of fiscal powers in a federal state has been studied extensively by Gordon (1983) and Dahlby (2008). In the traditional fiscal federalism, which focuses on efficiency and a large number of regions, the normative result is simple: put the tax responsibility at the level where the marginal cost of collecting public funds is lowest. The marginal cost of public funds can differ among government levels due to horizontal tax competition (one region affecting positively the tax base of the other regions) and vertical tax competition (regional level affecting negatively the tax base of the federal level). Minimizing the overall efficiency cost of taxes by equalising the marginal cost of public funds results in a fiscal gap (difference between regional expenditures and regional tax revenues) but this is not a problem in a world with benevolent governments. Politicians are not necessarily benevolent and this raises the accountability question linked to the fiscal gap: does a larger fiscal gap increase the risk of lower accountability of the politicians? Besley (2006) surveys the relevant theoretical models and Lockwood (2008) surveys the empirical evidence. The outcome of this part is double. First, orders of magnitude of the MCPF of different types of taxes used or likely to be used in Belgium by the federal and regional level. These estimates rely on existing models (cfr. contribution on micro-simulation models for Flanders). The second result is a translation of existing accountability insights to the Belgian context. C.Different aspects of the current Belgian institutional set-up have been analysed in isolation. There is an analysis of some expenditure functions (health, poverty, infrastructure...), there is some analysis of different types of taxes (TVtax,) and there are bookkeeping types of analysis of the effects on the fiscal gap of reallocating expenditure and taxation powers to the regions. There is, yet, no integrated assessment of the effects of an alternative allocation of expenditures and taxes over government levels. The integrated assessment can take the form of a stylised representation of the behaviour of the households, firms, regional governments and federal government that is internally consistent: each of these agents optimizes its behaviour within the institutional framework that is assumed. Ambitions to analyse alternatives should remain limited because it is a complex system where the outcome is determined by political mechanisms at the regional and federal level. These may be more or less internally efficient and may or may not lead to efficient cooperative agreements. What can be achieved is first a comparison of alternatives under the assumption of benevolent governments. This requires as input MCPF s (cfr.b above) and the degree of externalities in different types of expenditures. A second comparison will remain more qualitative as it will try to take on board the expected accountability and interregional cooperation aspects. Planned reports 1. Comparison of foreign solidarity mechanisms in a Belgian context, taking into account the expected effects of the 6 state reform (dec.2012) 2. Estimation of orders of magnitude of the MCPF of different taxes in Belgium (dec.2013) 3. Quantitative and qualitative assessment of alternative allocations of tax and expenditure functions to Regions in a Belgian context. (dec 2014 en dec 2015) List of references Ahmad E., Brosio G. (ed.),(2008) Handbook of fiscal federalism, Edward Elgar, 575 p. Besley T. (2006), Principled agents.,oxford University Press Boadway R. (2008), Intergovernmental redistributive transfers, ch 14 in Ahmad E.,Brosio G. (ed.), Handbook of fiscal federalism, E. Elgar, 575 p. Boadway R., ShahA. (2009) Fiscal federalisms, Cambridge University Press, 620 p Dahlby B.,(2008) The Marginal cost of public funds theory and applications, MIT press, Cambridge, Massachusetts, 332 p Gordon R.,(1983) An optimal taxation approach to fiscal federalism, Quarterly Journal of Economics, 98, pp Gordon R. & Cullen J. (2011, forthcoming), Income redistribution in a federal system of governments, Journal of Public economics Lockwood B. (2008), The political economy of decentralization, ch1 in Ahmad E., Brosio G. (ed.), Handbook of fiscal federalism, E. Elgar, 575 p. 11

12 Scientific Personnel Promoters : Prof. dr. S.PROOST & Prof. dr. A.DECOSTER, KUL Time schedule X X X X track A2: regional taxes as a policy instrument Tabel 7 General overview of the projects of track A2 Title Partner A2a REGIONAL TAXES,HOUSING AND SUSTAINABLE GROWTH A2b INHERITANCE TAX REFORM Total budget A HOGENT KUL/HOGENT C.SMOLDERS/ S.GOEMINNE A.HAELTERMAN/ B.DE GROOTE Paragraph in the Call Project A2a : regional taxes, housing and sustainable growth Title Partner A2a REGIONAL TAXES,HOUSING AND SUSTAINABLE GROWTH HOGENT C.SMOLDERS/ S.GOEMINNE Paragraph in the Call Research questions This research proposal focuses on the effects of regional taxes. It presents 2 lines of research. Most of the research time is dedicated to the study of the effects of regional taxes on homeownership.this is due to the importance of the matter, but also to the availability of data to conduct proper studies. 1. Study of the effects of regional taxes on homeownership: Basically, this part of the project wants to answer the following questions: - Can taxes induce ownership? - Which taxes are suited best to support ownership? - How do citizens react to housing taxes? - Are housing taxes an instrument to increase the mobility of the elder population? - What was the effect of the tax reform that introduced the so called Woonbonus in the personal income tax on homeownership and housing demand? - Did the leegstandsheffing (tax to bring empty property back into use or to force owners to renovate neglected property) have any effect on the reactivation of property? 2. Study of tax policies to increase sustainable growth: In this part we focus on the Flemish property tax reform that results in a tax reduction for energy efficient new build homes. What has been the effectiveness, the cost efficiency, the administrative burden and the knowledge of the tax payers concerning this reform? 12

13 Literature & theoretic model Part 1 :the effects of taxes on homeownership As in many countries, Belgian housing policies are strongly oriented towards increasing homeownership. There seems to be a general belief that stimulating citizens to buy or build houses is of great merit for individuals and society. This view is supported by academic literature pointing to important positive homeownership externalities. Studies present evidence that the longer average tenure of homeowners increases neighborhood stability. Homeownership induces the development of social networks and social capital (Kleinhans et al., 2007; DiPasquale & Glaeser, 1999; Haurin et al., 2003) and cities counting more owners seem to have lower crime rates than others (Glaeser & Sacerdote, 1999, 2000; Cox, Brounen en Neuteboom, 2010). In addition, possessing a home at the age of retirement protects citizens against poverty (Davidoff, 2008; De Nardi et al., 2008). Finally, studies showed that owners are in general more satisfied with their housing. Ownership seems to smooth the disutility arriving from leaky roofs, damp walls, noisy neighborhoods or shortage of space (Diaz-Serrano, 2009). Yet, homeownership is much more contested from a labor market perspective. Ownership might decrease job mobility, both at the individual level and the aggregate. The Oswald hypothesis refers to the adverse relationship between the fraction of owners and the unemployment rate (Oswald, 1996). Studies based on microeconomic data often reject the Oswald hypothesis suggesting that education and job positions, rather than ownership, explain immobility. (Coulson & Fisher,2002; 2009; Robson, 2003; Von Leuvensteijn and Koning, 2004; Münch et al.2004,2008). Studies based on macro data more often are in line with Oswald, though not all (Nickell et.al.2005; Barrios Garcia & Hernandez,2004; Coulson & Fisher,2009, Lerbs,2010). For Belgium, the Steunpunt Fiscaliteit en Begroting, tested the Oswald hypothesis based on macro data. Contrary to former studies, the econometric set up was appropriate to analyze panel data and to cope with the reverse causality problems the analysis brings about. The estimations based on data for 42 districts confirm the Oswald effect. A 1%-point rise in the rate of homeownership in a district is found to imply a fall in the employment rate by about 0.3%-points. This adverse effect is attenuated in districts with a larger number of higher educated citizens (Isebaert, Heylen en Smolders, 2011). In addition, recently, a study was started using micro data, based on the panel study for Belgian households (PSBH) and the EU-SILC-data. Using characteristic from 2837 households, Probit- and Logit- estimations are used to reveal whether private renters move more frequently than social renters or owners. In addition, the impact of age, education and the region where the household lives are taken into account. Family characteristics and employment status are also controlled for. If there are any lock-in effects resulting from homeownership, they will be reinforced by government policies to promote ownership. Taxes, subsidies or regulation can either target the demand or supply side of the housing market. For an overview, we refer to Holmans et al.(2002). 13

14 (Holmans et al., 2002) In this study we focus on taxes. Important tax incentives voted by the federal government as well as the Regions during the last decade were: 1. the 2005 reform resulting in the so called Woonbonus in the income tax: buyers financing their only house through a mortgage, can deduct from their net taxable income 2080 EUR of interest payments and capital amortizations, supplemented with mortgage insurance premiums; the deductible amount is increased for the first decade of the mortgage payments and for large families. 2. the temporary measure to reduce the VAT-rate to 6% for a part of the construction costs of new build family homes ( ) 3. the 6% instead of 21% VAT rate for properties destructed and converted into new homes in 32 cities 4. the Flemish 2002 reform of the transfer tax (stamp duties) resulting in lower tax rates (5 and 10% instead of 6 and 12,5%); the partial exemption from transfer taxes for first time homebuyers, the opportunity to deduct stamp duties paid in the past, after selling a property and buying a new one 5. the extra exemptions from stamp duties in case the home is financed through a mortgage ( 1/1/2009) and in case a property was bought that is on the list of empty or neglected properties ( 1/09/2009) 6. the reduced tax rates on gifts of building lots ( 1/1/2003) 7. the family home exemption in the inheritance tax for the surviving spouse ( 1/1/2007) Whether these measures actually supported homeownership is unsure. On aggregate, homeownership increased from 72,2% in 1995 to 74,4% in But, according to Heylen & Winters (2009), this increase was primarily due to a cohort effect. The study reveals large differences in ownership between the low and the high educated and the low and the high income families. Only few studies provide evidence of the effect of the tax measures listed. Capéau,Decoster & Vermeulen (2004) analyzed the impact of the 2002 reduction of the Flemish registration fees on the demand side of the Flemish housing market. A microeconomic model was used to explain the optimal timing of homeownership in the lifecycle. The 14

15 results indicate that since the reform, homeownership comes at an earlier moment in the lifecycle. Moreover, some households, which would have been lifelong tenants, purchased a house after the reform. Smolders (2010) studied the impact of the Flemish gift tax reduction on the use of land. A panel data analysis on building permits for the period for 588 out of 589 Belgian communities, reveals that housing starts are related to inflation, interest on mortgages, demographic variables and housing market developments. Additionally, evidence is found that building activity increased substantially in Flemish communities in the post reform era compared to the other regions that did not decrease the gift tax rates. This project aims to provide new insights in the way these measures have affected homeownership. We plan to implement the following studies: - desk research resulting in a literature review concerning the studies on the effects of tax instruments on homeownership (year 1) - evaluation of the impact of the Woonbonus: Like Pellegrino, Piaceza & Turati (2011) we will use micro data. We will investigate whether the shift from renter to owner was influenced by the Woonbonus, based on data from the SILC panels. The results will be generated by means of Logit and Probit estimations. In case they are accessible, we will also analyze fiscal data from the income tax files of the federal government.(year 1-2-3) - Study of the transfer tax exemptions and the opportunity to deduct formerly paid stamp duties from those to be paid when buying a new home: based on the SILC panels we will analyze the changes in housing of owners over time. The study aims to reveal at what age owners change houses and how taxes affect the choice of the new home. What does these data reveal concerning the housing consumption of the buyers aged 25-35? Does the deductibility of transaction fees results in selling the first home and buying larger and more expensive homes more rapidly? As in Keese (2010), special attention will also be given to the mobility of the elderly. In the context of the ageing society, it is important to know whether the transfer tax deduction succeeds in increasing the mobility of this group. (year 2 and 3) - Evaluation of the tax on neglected and empty property. Based on fiscal data we will investigate what have been the revenues from the tax, how many homes have been listed for how long and how this affected the supply side of the housing market in general. Attention will be given to the cost efficiency of the regulation, to the administrative burden attached to it and to interactions with other policies. (year 2) Part 2. Study of tax policies to increase sustainable growth Belgian governments have been using taxes in many ways to support sustainable growth. Specifically for the Flemish government, we refer to the greening of traffic taxes, to the attempts to speed up renovation and energy efficiency of the housing stock by giving specific tax allowances in the stamp duties and the property taxes.we also refer to the exemption in the inheritance tax for woods and land situated in the area of the Flemish Ecological Network (VEN). Finally, the tax on neglected and empty property, to a certain extent, could be considered as a tax to increase sustainability. In this study we plan to focus on the Flemish property tax reform that resulted in a tax reduction for energy-efficient new build homes. Using administrative data, we plan to evaluate the effectiveness, the cost efficiency, the administrative burden and the knowledge of the tax payers concerning this reform. Planned reports A policy report will be presented for each substudy. The studies concerning the effects of the Woonbonus and the deductability of formerly paid stamp duties will be submitted for publication in SSCI-journals. List of references Barrios Garcia, J.A. & Rodriguez Hernandez, J.E. (2004) User cost changes, unemployment and home-ownership: evidence from Spain, Urban Studies, 41, Capéau,B.,Decoster,A., & Vermeulen,F. (2004) Het effect van de verlaging van de Vlaamse registratierechten: simulaties met een geordend logitmodel,kwartaalschrift Economie & management, 1, Coulson, E.N. & Fisher, L.M. (2002) Tenure choice and labour market outcomes, Housing Studies, 17, Coulson, E.N. & Fisher, L.M. (2009) Housing tenure and labor market impacts: the search goes on, Journal of Urban Economics, 66, 15

16 Davidoff,T. (2008) Home equity commitment and long-term care insurance demand, Journal of Public Economics,94, De Nardi,M., French,E.,Jones,J.B. (2009) Life expectancy and old age savings, American Economic Review,99, Deskins, J. & Fox, W. (2008) Measuring behavioural responses to the property tax, what role for property taxes? Conference. Diaz-Serran, L. (2009) Disentangling the housing satisfaction puzzle: does homeownership really matter?, Journal of Economic Psychology, 30, DiPasquale, D. & Glaeser, E. (1999) Incentives and Social Capital: Are Homeowners better citizens, Journal of Urban Economics, 45, Glaeser, E. & Sacerdote, B. (1999) Why is there more crime in cities?, Journal of Political Economy, 107, Glaeser, E. & Sacerdote, B. (2000) The social consequences of housing, Journal of Housing Economics, 9, Haurin, D., Diets, R. & Weinberg, B. (2003) The impact of neighborhood homeownership rates: a review of the theoretical and empirical literature, Journal of Housing Research, 13(2), Heylen, K. & Winters, S. (2009) Woningbezit in Vlaanderen: een cohortebenadering, Steunpunt Ruimte en Wonen, Leuven, 22p. Holmans, A., Whitehead, C. & Scanlon, K. (2002) Fiscal policy instruments to promote affordable housing, final report, Cambridge centre for housing and planning research. Isebaert,D. Heylen,F. & Smolders,C. (2011).Houses and/or jobs:ownership and the labour market in Belgian Arrondissements, CESifo working paper. Keese, M. (2010) Downsize, undermaintain, or leave it as it is: housing choices of elder Germans, CESifo Working Paper. Kleinhans, R., Priemus, H. & Engbersen, G. (2007) Understanding social capital in recently restructured urban neighborhoods: two case studies in Rotterdam, Urban Studies, 44(5/6), Lerbs, O. (2010) Does home ownership really cause unemployment? Evidence from German regional data, Preliminary draft,22p. Munch, J.R., Rosholm, M. & Svarer, M. (2008) Home ownership, job duration, and wages, Journal of Urban Economics, 63, pp Nickell, S. & Layard, R. (1999) Labor market institutions and economic performance, in Ashenfeiter O. and D. Card (eds.), Handbook of Labor Economics, North Holland, New York, 3c,pp Oswald, A.J. (1996) A conjecture on the explanation for high unemployment in the industrialized nations: part 1, Warwick Economies Research Paper, N 475, University of Warwick. Pellegrino, S., Piacenz, M. & Turati, G. (2011) Developing a static microsimulation model for the analysis of housing taxation in Italy, International Journal of MIcrosimulation, 4(2), Robson, M.T. (2003) Housing markets and regional unemployment flows in Great Britain, The Manchester School, 71, pp Smolders, C. (2010). The impact of the Flemish gift tax reform on the use of land, Steunpunt fiscaliteit en begroting, working paper. Van Leuvensteijn, M. and Koning, P. (2004) The effect of home-ownership on labor mobility in the Netherlands, Journal of Urban Economics, 55, pp Scientific Personnel Promoters : Prof. dr. C.Smolders & dr. S.Goeminne Time schedule X X X X Project A2b : inheritance tax reform Title Partner A2b INHERITANCE TAX REFORM KUL/HOGENT A.HAELTERMAN/ B.DE GROOTE Paragraph in the Call Research questions Inheritance taxes are an important source of income for the Regions. Moreover they are a sensitive policy instrument since they deal with the transfer of family-assets and private property. They concern family-structures and the distribution of assets over generations within this structure. They reflect the idea of redistribution of wealth and equal chances within society. A government trying to embed the complex balance of interests in inheritance law, risks to end up with a regulation that lacks transparency, is hard to administer and is poorly understood by taxpayers. Given the impact of these taxes on intergenerational family-asset flows, their legitimacy is subject to discussion and compliance is at stake. 16

17 Since these concerns urge the legislator to consider inheritance tax reforms, a comparative study will be set up. The study will address the following questions: - What is the framework of reference? This implies an assessment of a representative sample of inheritance tax systems in other (EU-)States. The criteria on which the compared legislation has to be assessed will reflect the aforementioned concerns and needs for reform. Therefore a set of appropriate criteria will be listed. - Based on the results of this comparison, which reforms should be undertaken? - How do these proposals fit in with the concerns of policymakers? Are they compatible with the structure of the Flemish inheritance tax legislation, the Belgian/European constitutional framework, the need of conceptual coherence? - How are these proposals evaluated by stakeholders? Literature & theoretic model In Belgium, inheritance taxes are the sovereignty of the Regions. During the last decades, the Flemish legislator exercised its legislative competence which led to punctual modifications of the inheritance tax system (f.i. the exemption of the transfer of the family house in art. 48 Flemish Code of Succession Taxes, f.i. the exemption of the transfer of family owned companies in art. 60bis Flemish Code of Succession Taxes, f.i. the equal treatment of marriage and co-habitation of children and step-children). More recently, the Flemish legislator is aiming for a more comprehensive approach of the reform of inheritance taxes. This resulted in the adoption of a resolution in July 2010 of a Study Commission regarding regional taxes, inter alia inheritance taxes. Moreover, initiatives of Members of the Flemish Parliament illustrate the relevance of a study regarding a possible reform of inheritance tax rules, as it could nourish the debate in this field (see f.i. the chapter on inheritance taxes (K. Schryvers, V. Smaers) of the CD&V policy note regarding a modernization of Succession law, March 2011, to be found on Against this background, a comparative study will be set up, leading to a framework of reference for potential reform initiatives. It has to deliver best practices and useful models for proposals to refine Flemish inheritance tax rules. First of all, the comparative study will focus on (a) the impact of family structure on taxation. It will take into account the family situation of the deceased and its heirs. (b) It will also analyse the impact of the patrimonial organization within this structure on taxation. In view of the latter, attention will be given to relevant civil law rules concerning the distribution of the deceased assets, as well as to possible cross-influence of rules regarding inheritance taxes and rules regarding the taxation of gifts inter vivos. This implies a study of tariff groups, tariffs of taxation (for different kinds of goods) and determination of the taxable assets, exemptions, etc. Inevitably, the relevance of the family s peculiarities (and its approach of patrimonial organization), will lead to an assessment of the characteristics of the proposed systems of taxation in view of their acceptance/compliance and perceived legitimacy/humanity. Of special interest in this regard is the attention the comparative study will give to the assessment of the analyzed inheritance tax rules in view of the policy-ideas they stand for. This means that the question has to be addressed whether the legal framework is helpful in obtaining the policy-goal the legislator got in mind when drafting the legislation. Important as well is that apart from this mainly bibliographical research, a qualitative (and quantitative) survey of the models with stakeholder(s) (groups) can be set up. These models will be introduced on the basis of the results of the comparative study outlined above. Finally, the comparative assessment has to take into account the need of simplification and coherence of the system of inheritance taxation, in view of the need of a reduction of administrative burdens for citizens as well as for the administration. The sample of the inheritance tax systems that have to be compared will be determined by the criteria that have to be 17

18 assessed, in view of guaranteeing a representative EU-sample as a sample that contains a broad overview of interesting approaches of the questions to be addressed. The basis will be an in-depth comparative bibliographical study of at least 4 relevant systems applicable in other EU member states. The findings will then have to be benchmarked with the list of potential Flemish policy objectives, in order to list the "best practices" for the Flemish authorities. This process will result in reform proposals in order to bring Flemish inheritance tax law in line with the concerns set out in the prospectus (legitimacy, compliance, complexity, ). Furthermore the study will include an evaluation of the proposals by a selection of stakeholders (qualitative/quantitative approach). Planned reports - Report discussing the (civil law influence corrected) comparative study. - Report with the theoretic overview of policy objectives identified. - Report containing a (short) list of efficient and workable measures or changes that could be considered in a Flemish context. Scientific Personnel Promoters : Prof. dr. A. Haelterman & B.De Groote Time schedule X X track A3: modelling tax impact Tabel 8 General overview of the projects of track A3 Title Partner A3a1 FORECASTING MODELS FOR REGISTRATION FEES & INHERITANCE TAXES HOGENT A3a2 MODELLING THE EFFECTS OF THE TRAFFIC TAX C.SMOLDERS/ G.EVERAERT/ K.INGELBRECHT REFORM VITO I.MAYERES A3b1 MICRO SIMULATION MODELS: INCOME TAX KUL A.DECOSTER/S.PROOST A3b2 MICRO SIMULATION MODELS: INHERITANCE TAX HOGENT C.SMOLDERS/ B. DE GROOTE A3c GEM GROWTH& EMPLOYMENT BASED ON MICRO SIMULATION OUTPUT UGENT F.HEYLEN Total budget A Paragraph in the Call

19 Project A3a1: forecasting models for registration fees & inheritance taxes Title Partner A3a1 FORECASTING MODELS UGENT C.SMOLDERS/ G.EVERAERT/ K.INGELBRECHT Paragraph in the Call Research questions Since 2001, the Regions have the power to set 11 different taxes. Though the Regions are predominantly financed through the Special Financing Law transfers from the federal state, these taxes generate more than 4 billion euro of revenue for the Flemish Region. Throughout the years, the government faced the need to generate reliable forecasts for this part of the tax income. Recently, the question became even more urgent as the government expressed the wish to implement a fiscal rule for the years to come. In this study, the focus is on the stamp duties and the inheritance taxes. The purpose of this track is to further develop the revenue forecasting models, which were initiated by the Steunpunt Fiscaliteit & Begroting in 2011.These were primarily macro-economic models, using time series data controlled for structural breaks. The central research questions : 1. How do foreign fiscal administrations estimate the revenues of transfer taxes (stamp duties/inheritance taxes/gift taxes) (cfr. CBO/JCT in US)? 2. How do ADL models perform based on yearly tax revenue data? 3. Does reliance on disaggregated housing price models lead to better performing models for the stamp duties? 4. Can combination forecasts or VAR-models result in better predictions for the inheritance tax and stamp duties revenues? Literature & theoretic model Since the Maastricht Treaty and the Stability and Growth Pact, multi-annual budget programmes have become a central element of the monitoring process of public debt and deficits. Yet, it is fair to expect that in the aftermath of the 2008 financial and 2010 debt crisis adequate and reliable revenue forecasts shall gain even more importance. In general, the prediction of budget deficits (Artis & Marcellino, 2001;Favero & Marcellino,2005) and tax revenues (Mocan & Azad,1995;Auerbach,1999; Golosov & King,2002) proves to be a delicate exercise. Budgetary and growth forecasts in the Euro area have shown some systematic over-optimistic bias (Favero & Marcellino,2005). The underlying causes of the biased fiscal variables forecasts are related to the inaccurate prediction of key variables (such as inflation, GDP growth,etc.) (Strauch, Halleberg,& Von Hagen,2004) or to the asymmetric loss functions of the forecasters (Banerjee, Marcellino & Masten,2006). In addition, Jonung & Larch (2005) refer to the institutional context: ideally, forecasts should be generated by independent forecasting agencies rather than by the administration, to avoid politically motivated bias. A second observation concerns the techniques used to generate these forecasts. A large amount of revenue forecasts is mainly the result of adopting autoregressive distributed lag models. Yet, due to policy changes or structural breaks, these models might not always perform well. A more sophisticated approach considers VAR-models (vector auto regression) or combination forecasts. However, a drawback of these techniques is the decrease in the degrees of freedom due to the large number of variables in the equations. This might be problematic in case time series contain quarterly data and the period under consideration is rather short (less than 10 years). Using FAVAR-models that combine principal component analysis with VAR-analysis might be a way to solve this (Iacoviello,2005; Vargas-Silva, 2008). Another disadvantage could be the complexity of the models. Given that they are meant to be integrated in the administration s daily practice, forecasting models should be suitable for automatisation. This surely is harder to achieve for complex combination forecasts, than for AR or ADL models. A third observation is related to data availability. As Croushore & Stark (2001) and Kozicki (2002) discussed, data 19

20 vintage is an important matter when constructing forecasting models. Forecasting output might be very fragile, when based on recent, not definite data. Unfortunately, given rather short time series, forecasters have no choice but integrating these preliminary data. For instance, for the forecasts of the Flemish inheritance tax revenues, less than 50 quarters are available and the last 4 quarters are indefinite, as the federal government changes the data regularly and significantly during the next year. Consequently, the inheritance tax forecasts should be reproduced regularly, making the process less cost-efficient. In this study, the focus is on forecasting the revenues from the most important Flemish taxes. In 2010, the Steunpunt fiscaliteit & begroting constructed tax revenue forecasts for stamp duties, gift taxes and inheritance taxes. Though the root of the mean squared errors (RMSE) of the forecasts was promising, further investigation remains necessary. Concerning the stamp duties, the expected tax revenue was established as the product of tax rates, the estimated house prices and the number of transactions. Conform the literature (Hendershott & Weicher,2002) the forecasts were based on average Flemish housing prices released on a quarterly basis.the house price estimates relied on AR, ADL, VAR- models and combination forecasts. Explanatory variables were those used in the Baugnet et al.(2003) model for the Belgian housing market (e.g. interest rates on mortgages, economic growth, inflation, number of building permits levied,...). While this procedure definitely gives insight in what has provoked changes in the tax revenues, estimating the underlying components also has its drawbacks. Clearly, as some of the explanatory variables taken up in the house price equation had to be estimated themselves through ARMA-processes, this induces a cascade of measurement errors. Next to forecasts of house prices, forecasts of transaction intensity are needed. These still have to be developed, but it is clear that forecasting the revenue determinants, rather than the revenues, results in a rather technical, complex and time consuming process. As it is the purpose to deliver time-efficient forecasting solutions to the government s administration we therefore will first explore a more aggregate approach. We plan to invest in ADL models based on revenue data, collected on a on yearly basis. For the government, yearly forecasts are much more important than quarterly forecasts. Presumably, this will lead to better predictions as the seasonal fluctuations in the data are no longer present. Second, we want to improve the house price forecasts. Like in Gupta & Kabundi (2010), this study will adopt a more decentralised approach, as we intend to forecast average prices for districts or clusters of municipalities showing similar characteristics important for the price setting of real estate. As such, the analysis will take into account the large local variation in prices. We will explore AR and ADL models to investigate whether the price-regressions differ regionally. We will use average housing prices available for 308 Flemish communities. As time series contain structural breaks and given the fact that we allow for a different impact of variables in the districts we will also consider FAVARmodels. (Timmermann, 2006;Clements & Hendry, 2006, Hendry & Clements, 2004). Concerning the inheritance taxes, the analysis done in 2011 was based on registered house prices and indicators of wealth. In this study, we will explore the ability of expected mortality rates to predict the revenues of inheritance tax. We will also look at the results from adopting the predicted house prices in the forecasts of the transaction fees, rather than the prices from the Federal Statistics Office. In addition, we will adopt the research strategy presented for the stamp duties: we will evaluate forecasting errors from models based on inheritance tax revenues, rather than on the underlying components. Research design We plan to proceed as follows: Review of the literature on how these taxes could be forecasted, how other administrations proceed, and which are the structural variables to adopt (year 1) Update and rearrangement of the dataset for the inheritances taxes and stamp duties (year 1) Report considering the analysis of the RMSE and AMSE for the ADL models estimated in order to detect the best model using yearly revenue data (year 1 & 2) Report on the analysis of the disaggregated price data( year 2) 20

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