Question

1. You are assigned two tasks. In the first, you are asked to project tax revenue for a city government under the assumption that current tax rates are left unchanged. In the second you are asked to forecast the revenue increase that would result from increasing the tax on automobiles garaged in the city. You want to use regressions to answer these two questions
   1. Would you need to be concerned about the exogeneity of your right-hand-side variables in one, both or neither of the projects. Explain.
   2. What time-series technique would be appropriate for projecting revenue assuming there are no changes to the tax rates? What steps are involved?

Answer 1

Answer A -

These mean values are equal if the constant is the component of the estimated equation {is introduced in the equation} . It doesn't have to be the same if there is no constant.

In linear regression, these mean values must be equal if there is a constant in the modal. In this case the sum,and therefore sample average of the OLS residuals, is zero .

Answer B -

In the time methods , data on revenues in a past yera on year are used to forecast revenues for the upcoming years.There are four general approaches to time series forecasting>

1. Simple trend anlysis
2. The autoregressive approach
3. The mixed technique approach
4. The approach that uses data on seasonal flictuctions of a revenue source to predict and adjust current year revenue

The first three methods are used to forecast revenue for the predict revenue with in a budget year based on collection data for the first few months of the year.