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Appendix A: Real Versus Nominal Variables
Appendix B: Bias in Potential Level Estimates
This paper uses structural and cyclically adjusted balances as two interchangeable terms.
Note, however, that the share of mining revenue in total tax revenue is quite limited.
Fluctuations in commodity and asset prices are measured as the deviation of these prices from their long-term levels.
Following the empirical evidence provided in this literature, no adjustment is made on the expenditure side (Fedelino, Ivanova, and Horton, 2009). Similarly, Bouthevillain, and others (2001) use a near-zero (-0.2) adjustment on the cyclical component of the total expenditure
Note the caveats in estimating potential output and potential tax bases via an HP filter: First, the potential levels vary depending on the smoothing parameter used in these estimations. Second, an end-point problem exists in the HP-filter estimation. Nevertheless, this problem is minimized by using the 2015 IMF staff projections. Third, the HP filter does not detect structural breaks in the data. The bias created by these problems is discussed in Appendix B.
This paper estimates the elasticities based on the fluctuation of real variables. Tax revenue is deflated by the GDP deflator to obtain the real variables. As discussed in the Appendix A, elasticity estimates from nominal variables are biased, and the elasticity estimates tend to approach 1.
Commodity prices are measured through various indicators: first separately from the Rand denominated prices of gold and platinum—the two largest commodity exports of South Africa—and second, through a factor analysis of the comovement of these price indices.
Results in this table are presented from regressions solved with annual data. Use of annual and quarterly data does not yield different coefficient estimates, as long as seasonal deviations in quarterly data are correctly accounted for. All components of tax revenue, in particular CIT are highly seasonal.
2009 Tax Statistics: a joint publication between National Treasury and the South African Revenue Service.
However, as indicated in the previous section, results are prone to biases in the specification and measurement of long-term price levels for commodities and assets.
Expenditures are not adjusted for the business cycle, following Fedelino, Ivanova, and Horton (2009).
Forecast values are based on IMF Staff projections.
Forecast values are based on IMF Staff projections.