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This paper contributes to the empirical literature on the use of a panel data model to identify fundamental factors related with regional property tax revenues in Spain (Real Property Transfers Tax, (RPTT), and Stamped Legal Documents, (SLD)).
The RPTT and SLD is an element that could determine, through slight fluctuations, the recovery of the property demand, generating positive effects also on the construction sector. In previous studies we have reached this tax revenues through the estimation of the tax base using leading indicators of activity in the construction sector such as the number of annual approvals for new residential constructions entered as exogenous regressor in ARX models. These models have successfully reproduced the past and have made predictions that have been subsequently confirmed by the backtesting exercises. However, this methodology has the disadvantage of using an independent ARX model for each autonomous community in Spain, losing the perspective of a joint analysis of all the regions in a single model, which would enrich the range of results.
In this paper our goal is to be able to use a single model (a fixed effect panel data model) for all autonomous communities (AC) operating under the common regime along with two very significant indicators to estimate the tax base in each region: the total value of property transfers in dwellings in the free market drawn by the Spanish Ministry of Public Works and Transport and the total mortgage payments from the Spanish National Statistics Institute. The results of the backtesting exercises, highlight the predictive ability of the model and the high degree of predictive capacity of the selected regressors.
