Fiscal Modelling Graeme Roy Fiscal Analysis Branch Office of the Chief Economic Adviser

Introduction Work of the Branch Modelling – Personal taxation and benefits – Business taxation – Individual sectors – e.g. Energy

Personal taxation and benefits MOSH - Microsimulation of Scottish Households Analyse the effect of change in policy on Scottish households Calculate each households tax liability and benefit entitlement under different tax systems Gross up the results so that they are representative of the population as a whole. Analyse the distributional impact of tax & benefit changes

How does the model work?

Why is it Useful? Based on each household’s characteristics their tax liability, benefit entitlement and net income is calculated Using this information we can then estimate… – Revenue raised from specific taxes – Expenditure on different benefits – Household net income under different scenarios – Results can be stratified by household type/income decile Differential take up rates

Abolishing the 10p Starting Rate Average Change in Equivalised Net Income -0.4% 0.0% 0.4% 0.8% 1.2% 1.6% Bottom 20%Quintile 2Quintile 3Quintile 4Richest 20% Income Distribution Income Tax Changes

Abolishing the 10p Starting Rate Average Change in Equivalised Net Income -0.4% 0.0% 0.4% 0.8% 1.2% 1.6% Bottom 20%Quintile 2Quintile 3Quintile 4Richest 20% Income Distribution Income Tax Changes..including Benefit Changes

Abolishing the 10p Starting Rate Average Change in Equivalised Net Income

Abolishing the 10p Starting Rate Number of households worse off 0 50, , , , ,000 Bottom 20%Quintile 2Quintile 3Quintile 4Richest 20% Income Distribution Income Tax Changes

Abolishing the 10p Starting Rate Number of households worse off 0 50, , , , ,000 Bottom 20%Quintile 2Quintile 3Quintile 4Richest 20% Income Distribution Income Tax Changes..including Benefit Changes

Abolishing the 10p Starting Rate Number of households worse off 0 50, , , , ,000 Bottom 20%Quintile 2Quintile 3Quintile 4Richest 20% Income Distribution Income Tax Changes..including Benefit Changes...including higher personal allowances

Additional Work TABOSH – Tax and benefit calculator for Scottish households – Based on specified characteristics what taxes are paid and benefits received. Example: ‘Incentives to work’ – – How much does an adult’s net income change by when they work longer hours

Incentives for labour market participation

Additional Work TABOSH – Tax and benefit calculator for Scottish households – Based on specified characteristics what taxes are paid and benefits received. BABOSH – Tax calculator for Scottish businesses – Based on specified characteristics (e.g. turnover, number of employees) what taxes are paid and benefits received – Marginal & Effective tax rates

Corporation Tax

Future Work Dynamic Analysis – Household response to tax changes Long term trends: changes in demographics