IDEAS home Printed from https://ideas.repec.org/p/boi/wpaper/2022.04.html
   My bibliography  Save this paper

Cyclicality of Tax Expenditures: The Case of Israel

Author

Listed:
  • Michel Strawczynski

    (Bank of Israel)

Abstract

Tax expenditures have been rarely investigated internationally because of lack of data. This paper analyzes the cyclicality of tax expenditures in Israel, a country that has gradually intensified the use of this tool, becoming quantitatively important in terms of GDP when compared to other OECD countries. Using quarterly data for the period 1986 to 2016, I find that the pattern of cyclicality of government decisions on tax expenditures changed after 1997, following a notorious reduction of government's deficit and debt: tax expenditures became pro-cyclical in expansions and counter-cyclical in recessions. The latter finding resembles the pattern documented in the literature for government spending in selected developing economies, who achieved in recent years counter-cyclical implementation of spending.

Suggested Citation

  • Michel Strawczynski, 2022. "Cyclicality of Tax Expenditures: The Case of Israel," Bank of Israel Working Papers 2022.04, Bank of Israel.
    • Handle: RePEc:boi:wpaper:2022.04
    as

    Download full text from publisher

    File URL: https://boiwebrepec.azurefd.net/RePEc/boi/wpaper/WP_2022.04.pdf
    File Function: First Version, 2022
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Frankel, Jeffrey A. & Vegh, Carlos A. & Vuletin, Guillermo, 2013. "On graduation from fiscal procyclicality," Journal of Development Economics, Elsevier, vol. 100(1), pages 32-47.
    2. Zax, Jeffrey S., 1988. "Fringe benefits, income tax exemptions, and implicit subsides," Journal of Public Economics, Elsevier, vol. 37(2), pages 171-183, November.
    3. Strawczynski Michel, 2014. "Cyclicality Of Statutory Tax Rates," Israel Economic Review, Bank of Israel, vol. 11(1), pages 67-96.
    4. Fabrizio Balassone & Maura Francese & Stefania Zotteri, 2010. "Cyclical asymmetry in fiscal variables in the EU," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 37(4), pages 381-402, November.
    5. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
    6. Michel Strawczynski & Joseph Zeira, 2013. "Procyclicality of Fiscal Policy in Emerging Countries: The Cycle is the Trend," Central Banking, Analysis, and Economic Policies Book Series, in: Luis Felipe Céspedes & Jordi Galí (ed.),Fiscal Policy and Macroeconomic Performance, edition 1, volume 17, chapter 11, pages 427-466, Central Bank of Chile.
    7. Adi Brender & Eran Politzer, 2014. "The Effect of Legislated Tax Changes on Tax Revenues in Israel," Bank of Israel Working Papers 2014.08, Bank of Israel.
    8. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
    9. Carlos A. Vegh & Guillermo Vuletin, 2015. "How Is Tax Policy Conducted over the Business Cycle?," American Economic Journal: Economic Policy, American Economic Association, vol. 7(3), pages 327-370, August.
    10. Roubini, Nouriel & Sachs, Jeffrey D., 1989. "Political and economic determinants of budget deficits in the industrial democracies," European Economic Review, Elsevier, vol. 33(5), pages 903-933, May.
    11. Campos, Ed & Pradhan, Sanjay, 1996. "Budgetary institutions and expenditure outcomes : binding governments to fiscal performance," Policy Research Working Paper Series 1646, The World Bank.
    12. von Hagen, Jurgen & Harden, Ian J., 1995. "Budget processes and commitment to fiscal discipline," European Economic Review, Elsevier, vol. 39(3-4), pages 771-779, April.
    13. Michel Strawczynski & Joseph Zeira, 2003. "What Determines Education Expenditure In Israel?," Israel Economic Review, Bank of Israel, vol. 1(1), pages 11-33.
    14. Ethan Ilzetzki & Carlos A. Vegh, 2008. "Procyclical Fiscal Policy in Developing Countries: Truth or Fiction?," NBER Working Papers 14191, National Bureau of Economic Research, Inc.
    15. Noa Srebrnik & Michel Strawczynski, 2016. "Cyclicality of taxes and external debt," Applied Economics, Taylor & Francis Journals, vol. 48(48), pages 4622-4634, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ignacio Lozano-Espitia & Fernando Arias-Rodríguez & Jesus Bejarano & Andres Gonzalez & Clark Granger-Castaño & Franz Hamann & Yurany Hernández-Turca & Juan Manuel Julio-Román & Martha López & Juan C. , 2019. "La política fiscal y la estabilización macroeconómica en Colombia," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, issue 90, pages 1-60, April.
    2. Hongsheng Fang & Minyuan He & Dandan Dang & Jun Zhang, 2020. "Endogenous cyclical corporate tax burden in China: The role of tax quotas and growth targets," The World Economy, Wiley Blackwell, vol. 43(12), pages 3314-3339, December.
    3. Hongsheng Fang & Wen‐Quan Hu & Ruhua Shi & Xufei Zhang, 2023. "The Chinese‐style macroeconomic control: The role of state‐owned enterprises," The World Economy, Wiley Blackwell, vol. 46(3), pages 702-725, March.
    4. Kambale Kavese & Andrew Phiri, 2019. "Fiscal cyclicality in South African public expenditures: Do asymmetries explain inconsistencies?," Working Papers 1909, Department of Economics, Nelson Mandela University, revised Sep 2019.
    5. Asif Ahmad & Richard McManus & F. Gulcin Ozkan, 2021. "Fiscal space and the procyclicality of fiscal policy: The case for making hay while the sun shines," Economic Inquiry, Western Economic Association International, vol. 59(4), pages 1687-1701, October.
    6. Combes, Jean-Louis & Minea, Alexandru & Sow, Moussé, 2017. "Is fiscal policy always counter- (pro-) cyclical? The role of public debt and fiscal rules," Economic Modelling, Elsevier, vol. 65(C), pages 138-146.
    7. Guerguil, Martine & Mandon, Pierre & Tapsoba, René, 2017. "Flexible fiscal rules and countercyclical fiscal policy," Journal of Macroeconomics, Elsevier, vol. 52(C), pages 189-220.
    8. João T. Jalles, 2020. "Explaining Africa's public consumption procyclicality: Revisiting old evidence," International Finance, Wiley Blackwell, vol. 23(2), pages 297-323, August.
    9. Francesco Pappadà & Yanos Zylberberg, 2019. "Sovereign Default and Imperfect Tax Enforcement," CESifo Working Paper Series 7694, CESifo.
    10. Arsic, Milojko & Nojkovic, Aleksandra & Randjelovic, Sasa, 2017. "Determinants of discretionary fiscal policy in Central and Eastern Europe," Economic Systems, Elsevier, vol. 41(3), pages 367-378.
    11. Céspedes, Luis Felipe & Velasco, Andrés, 2014. "Was this time different?: Fiscal policy in commodity republics," Journal of Development Economics, Elsevier, vol. 106(C), pages 92-106.
    12. Carlos A. Vegh & Guillermo Vuletin, 2015. "How Is Tax Policy Conducted over the Business Cycle?," American Economic Journal: Economic Policy, American Economic Association, vol. 7(3), pages 327-370, August.
    13. Bashar, Omar H.M.N. & Bhattacharya, Prasad Sankar & Wohar, Mark E., 2017. "The cyclicality of fiscal policy: New evidence from unobserved components approach," Journal of Macroeconomics, Elsevier, vol. 53(C), pages 222-234.
    14. Gheorghița DINCĂ & Marius Sorin DINCĂ & Bardhyl DAUTI & Mirela Camelia BABA & Cătălina POPIONE, 2020. "Cyclicality of Fiscal Policy in the European Union," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 75-96, March.
    15. João Tovar Jalles, 2019. "On the Cyclicality of Social Expenditure: New Time-Varying evidence from Developing Economies," Working Papers REM 2019/82, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    16. Ardanaz, Martín & Hübscher, Evelyne & Keefer, Philip & Sattler, Thomas, 2023. "Why Do Voters Support Procyclical Fiscal Policies? Experimental Evidence from Latin America," IDB Publications (Working Papers) 12779, Inter-American Development Bank.
    17. Michaud, Amanda & Rothert, Jacek, 2018. "Redistributive fiscal policies and business cycles in emerging economies," Journal of International Economics, Elsevier, vol. 112(C), pages 123-133.
    18. Dilla, Diana, 2017. "Staatsverschuldung und Verschuldungsmentalität [Public Debt and Debt Mentality]," MPRA Paper 79432, University Library of Munich, Germany.
    19. Frankel, Jeffrey A. & Vegh, Carlos A. & Vuletin, Guillermo, 2013. "On graduation from fiscal procyclicality," Journal of Development Economics, Elsevier, vol. 100(1), pages 32-47.
    20. Jeffrey Frankel, 2013. "A Solution to Fiscal Procyclicality: The Structural Budget Institutions Pioneered by Chile," Central Banking, Analysis, and Economic Policies Book Series, in: Luis Felipe Céspedes & Jordi Galí (ed.),Fiscal Policy and Macroeconomic Performance, edition 1, volume 17, chapter 9, pages 323-391, Central Bank of Chile.

    More about this item

    Keywords

    Tax Expenditures; Cyclical Policy;

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:boi:wpaper:2022.04. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Yossi Yakhin (email available below). General contact details of provider: https://edirc.repec.org/data/boigvil.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.