Introduction

Official tax forecasting and the use of tax models is of utmost importance for public budgeting and for monitoring tax reform. Most—if not all—governments of Western industrialised countries employ some form of tax modelling in order to evaluate the financial impact and other aspects of taxation—such as its consequences on the income distribution, on the user cost of capital, or on work incentives. In the formerly socialist countries of Central and Eastern Europe and in newly emerging or developing countries that have shaken off a tradition of central planning—often with remarkable economic success—there is an increasing awareness of the advantages of formal tax modelling and simulation for evaluating and preparing public budgets or for monitoring the consequences of fiscal policies. However, many officials involved in formulating budgets and reforming taxation are still uncertain about the routes to follow as there is a variety of options and the conditions prevailing in these countries may vary greatly from the standards set in other countries.