Abstract for: Goods and Services Tax Dynamics

This paper aims to model the dynamics and the characteristics of the tax over the circulation of goods and services (ICMS) and thus estimate the potential ICMS tax capacity for Brazilian states from a set of socioeconomic variables. As ICMS in Brazil is the main source of public resources of tax origin for Brazilian states, it also defines the maximum capacity of tax collecting by tax authority, given the economic and social characteristics of each state. First, the ICMS behavior was analyzed and econometric models based on multiple linear regressions using the Ordinary Least Squares Method were built. Statistical criteria were used in the selection of the most appropriate estimation model to estimate the potential ICMS revenue of all Brazilian states. The principle of parsimony was also taken into account to select the simplest model, which still complies with the chosen criteria. The Tax Effort Index for each state was calculated from the ratio between the effective and the potential ICMS revenue, which reveals a valuable tool for revenue performance analysis on this kind of policy making processes. Finally, this study also produced a SD model of the Brazilian good and services tax dynamics to enhance the econometric capability to explain the tax behavior and its interaction with socioeconomic factors.