Functional relationship
TREV= F (VAT) …………………………………….3
Converting this to a linear or stochastic model we have
TREV = b0 +b1 VAT + e…………………………….4
Where b0 and b1are constant, TREV = Total Revenue, VAT = Value Added Tax
e = Error term or stochastic item, Apriori expectation = b1 > 0