Forecasting pandemic tax revenues in a small, open economy

TL;DR

This paper develops a model to forecast Bulgarian tax revenues during 2020-2022, addressing pandemic-related challenges and comparing official forecasts with model estimates to inform fiscal policy.

Contribution

It introduces a tailored econometric model for Bulgaria's pandemic-era revenue forecasting, aligning with IMF guidelines and evaluating forecast reliability.

Findings

Pandemic negatively impacted tax revenues.

Econometric models can produce reliable forecasts during crises.

Official forecasts may differ from model estimates.

Abstract

Tax analysis and forecasting of revenues are of paramount importance to ensure fiscal policy's viability and sustainability. However, the measures taken to contain the spread of the recent pandemic pose an unprecedented challenge to established models and approaches. This paper proposes a model to forecast tax revenues in Bulgaria for the fiscal years 2020-2022 built in accordance with the International Monetary Fund's recommendations on a dataset covering the period between 1995 and 2019. The study further discusses the actual trustworthiness of official Bulgarian forecasts, contrasting those figures with the model previously estimated. This study's quantitative results both confirm the pandemic's assumed negative impact on tax revenues and prove that econometrics can be tweaked to produce consistent revenue forecasts even in the relatively-unexplored case of Bulgaria offering new insights to policymakers and advocates.