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The Revenue Responsiveness of Consumption Taxes

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  • John Creedy
  • Norman Gemmell

Abstract

This paper derives analytical expressions for the revenue elasticity of consumption taxes and combined income‐consumption tax systems, analogous to those familiar for income taxes. It provides measures of tax revenue elasticities which can readily be applied in practice. Analytical results suggest that, unlike income taxes, consumption tax revenues are likely to be income‐inelastic in practice, and total income plus consumption tax revenue, though generally elastic, can be expected to decline over time in the absence of counterveiling fiscal reforms. The results also provide some insight into the effects on tax revenue growth (often unintended or unknown) of reforms made with other policy objectives in mind.

Suggested Citation

  • John Creedy & Norman Gemmell, 2002. "The Revenue Responsiveness of Consumption Taxes," The Economic Record, The Economic Society of Australia, vol. 78(241), pages 186-194, June.
    • Handle: RePEc:bla:ecorec:v:78:y:2002:i:241:p:186-194
    DOI: 10.1111/1475-4932.00022
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    Cited by:

    1. Creedy, John & Gemmell, Norman, 2008. "Corporation tax buoyancy and revenue elasticity in the UK," Economic Modelling, Elsevier, vol. 25(1), pages 24-37, January.

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