Victoria’s Economic Bulletin: Forecasting land transfer duty with a regime switching vector error correction model

Published by: Department of Treasury and Finance

Date: 2 October 2025

Authors: Sebastian Paz and Jonathan Dark

_{Disclaimer: The views expressed in this paper are those of the authors and do not necessarily reflect the views of the Department of Treasury and Finance (DTF).
Suggested Citation: Sebastian Paz and Jonathan Dark (2025) Forecasting land transfer duty with a regime switching vector error correction model. Victoria’s Economic Bulletin, October, vol 9, no 1. DTF.
Contact: For contact author’s details and/or questions on this paper, please email: veb@dtf.vic.gov.au.}

Abstract

Accurately forecasting government revenue is crucial for effective budgeting and policy making.

To model and forecast land transfer duty we use regime‑switching vector error correction models. We identify two states: a high-growth low-volatility state and a low-growth high-volatility state. In real time, the models identify the high-volatility state associated with COVID-19.

Our models consistently provide better forecasts than state invariant alternatives across multiple horizons and loss functions. Our findings suggest that regime switching models may be a useful tool for budgeting purposes.

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