The tax model system LOTTE is part of the portfolio of prediction models developed and operated by the Research department of Statistics Norway for Norwegian policy-makers. The model is used both by the Ministry of Finance and by the opposition parties in the parliament (Stortinget) in their preparation of their alternative government budgets. The microsimulation models belonging to the LOTTE-family of models are designed to simulate effects of changes in the taxation of individuals.
The standard non-behavioral tax-benefit model for the personal income tax schedule, named LOTTE-Skatt, is the work-horse of the LOTTE model system. The model simulates the immediate and direct effects on tax revenue and distributional effects of changes in the taxation of income and wealth. The data basis for the model is administrative data from the income tax return for the whole Norwegian population, as well as other register information at the individual level. To increase the computational speed in the model simulations, the data of the model are a representative sample of ten percent (of the population) for the last year for which data are available. The data for the base year are carried forward to later years by means of projection factors. LOTTE-Skatt is a non-behavioral model, not accounting for individuals changing their adjustment of work and consumption as a result of the tax changes.
A supplement to LOTTE-Skatt, named LOTTE-Arbeid, has been developed to simulate labor supply effects of changes in income taxes and transfers, and how these affect tax revenue and income distributions. LOTTE-Arbeid is a structural model based on individuals’ decisions regarding consumption and leisure, and is estimated for wage earners aged 26 to 62 by using data from the Norwegian labor force survey. Both with regards to complexity (computational speed) and uncertainty in modelling individual decisions, the module is primarily a tool for illustrating expected labor supply effects and implications for tax revenues of larger changes in the tax-benefit schedule. The model framework is discussed in several academic contributions.
LOTTE-Konsum is a model used to describe the distributional effects of changes in indirect taxation, i.e. changes in value added tax and excise duties. The data base is the same as in LOTTE-Skatt, but has been expanded with estimated budget shares. Information on budget shares based on consumption of various goods obtained from macro data (National accounts) as well as estimates of Engel functions obtained from the Survey of consumer expenditure. LOTTE-Konsum is (as LOTTE-Skatt) a non-behavioral model, not addressing how changes in indirect taxation may give behavioral changes in consumption.
KONSUM-G is a module describing effects on tax revenues from making changes in the taxes on goods traded across borders, such as alcohol and tobacco. Since the model includes alternative ways of accessing these goods, such as cross-border trade, tax-free trade and smuggling, the model provides a more realistic description of the effects of changes in the taxation of these goods than if one focuses on the domestic market alone. It can, for example, be used to study the revenue effects of a change in alcohol taxes, where it is taken into account that one can also gain access to alcohol through shopping in other countries (such as Sweden), via tax-free trade and through smuggling.
Model manager: Trine Engh Vattø
Participants:
Publications
Christiansen, V., Z. Jia, and T. O. Thoresen (2022). Assessing Income Tax Perturbations, International Tax and Public Finance, 29(2), 472–504.
Jia, Z. and T. E. Vattø (2021). Predicting the path of labor supply responses when state dependence matters. Labour Economics, 71.
Halvorsen, E. and T. O. Thoresen (2021). Distributional Effects of a Wealth Tax under Lifetime-Dynastic Income Concepts. Scandinavian Journal of Economics, 123(1), 184–215.
Lambert, P. J., R. Nesbakken and T. O. Thoresen (2020). A Common Base Answer to the Question “Which Country is Most Redistributive?” Scandinavian Journal of Economics, 122 (4), 1467–1479.
Nygård, O. E., J. Slemrod, and T. O. Thoresen (2019). Distributional implications of joint tax evasion. The Economic Journal 129, (620), 1894-1923.
Lian, B., Z. Jia, R. Nesbakken, O. E. Nygård, T.O. Thoresen and T. E. Vattø (2019). Er skattesystemet mer omfordelende nå? Rapporter 2019/30, Statistisk sentralbyrå. (in Norwegian)
Dagsvik, J. K., and Z. Jia (2016). Labor supply as a choice among latent jobs: unobserved heterogeneity and identification. Journal of Applied Econometrics 3 (3), 487–506.
Thoresen, T. O., Z. Jia, and P. J. Lambert (2016). Is there More Redistribution Now? A Review of Methods for Evaluating Tax Redistributional Effects, FinanzArchiv/Public Finance Analysis, 72(3), 302–333
Thoresen, T. O., and Vattø, T. E. (2015). Validation of the discrete choice labor supply model by methods of the new tax responsiveness literature. Labour Economics, 37, 38–53.
Aasness, J. and Nygård, O. E. (2014). Revenue functions and Dupuit curves for indirect taxes with cross-border shopping. International Tax and Public Finance 21, 72–297.
Dagsvik, J. K., Z. Jia, T. Kornstad, and T. O. Thoresen (2014). Theoretical and Practical Arguments for Modeling Labor Supply as a Choice among Latent Jobs. Journal of Economic Surveys, 28(1), 134–151.
Aasness, J., Dagsvik, J. K., and Thoresen, T. O. (2007). The Norwegian tax-benefit model system LOTTE. In Gupta, Anil, and Ann Harding (eds.), Modelling Our Future: Population Ageing, Health and Aged Care, International Symposia in Economic Theory and Econometrics (pp. 513-518).