The first issue while analyzing the fiscal environment concerns assessing the fiscal policy direction – expansionary or contractionary. Expansionary fiscal policy entails expanding the budget deficit by cutting taxes or increasing expenditures, with a goal of stimulating the economy during slowdown. Contractionary fiscal policy works the opposite way.
The second issue regarding fiscal policy evaluation is its link with the economic cycle. Short run stability requires that, notwithstanding exceptional cases, fiscal policy should help smooth economic cycles, i.e. consolidate during a boom and expand during a recession. Analyzing fiscal policy cyclicality also allows for gauging the country's capability to pursue countercyclical fiscal
The Parliamentary Budget Office's (PBO) given publication aims to estimate potential value-added tax (VAT) and the VAT gap (difference between potential and actual revenues) in Georgia.
A tax gap, by simple definition, is the difference between maximum theoretically collectable and actual tax receipts. Since it is impossible to have an ideally effective tax system, the existence of a tax gap is inevitable. Nevertheless, due to the importance of tax revenues, tax gap minimization is a major goal of the state.