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Dynamic Elasticities of Tax Revenue: Evidence from the Czech Republic

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  • Tomas Havranek
  • Zuzana Irsova
  • Jiri Schwarz

Abstract

Tax revenue elasticities with respect to tax bases are key parameters for the modeling of public finances. Yet the existing studies estimating these elasticities for post-transition countries disregard the effects of tax reforms on tax revenue, which renders their estimates inconsistent. We use a unique data set from the Czech Republic to account for the effects of reforms and estimate both short- and long-run tax revenue elasticities. Our results suggest that the long-run elasticities are 1.4 for wage tax, 0.9 for value added tax, 1.7 for profit tax, and 1 for social security contributions. The adjustment process for value added tax and social security contributions is fast, but for the remaining two categories it is important to distinguish between the short- and long-run elasticities: the initial response of revenue to changes in the bases is weak. In the case of wage tax it takes half a year for the elasticity to surpass unity.

Suggested Citation

  • Tomas Havranek & Zuzana Irsova & Jiri Schwarz, 2015. "Dynamic Elasticities of Tax Revenue: Evidence from the Czech Republic," Working Papers 2015/08, Czech National Bank.
    • Handle: RePEc:cnb:wpaper:2015/08
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    Cited by:

    1. Deli, Yota & Rodriguez, Abian Garcia & Kostarakos, Ilias & Varthalitis, Petros, 2018. "Dynamic tax revenue buoyancy estimates for a panel of OECD countries," Papers WP592, Economic and Social Research Institute (ESRI).
    2. Desislava Stoilova, 2017. "Tax structure and economic growth: Evidence from the European Union," Contaduría y Administración, Accounting and Management, vol. 62(3), pages 1041-1057, Julio-Sep.
    3. Bernd Hayo & Sascha Mierzwa & Umut Unal, 2021. "Estimating Policy-Corrected Long-Term and Short-Term Tax Elasticities for the United States, Germany, and the United Kingdom," MAGKS Papers on Economics 202112, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    4. Fotini Economou & Ioanna Kountouri & Yannis Panagopoulos & Georgia Skintzi & Ekaterini Tsouma, 2022. "Estimating excise tax revenue elasticity and buoyancy for tobacco products and alcoholic beverages: evidence from Greece," Applied Economics, Taylor & Francis Journals, vol. 54(39), pages 4557-4576, August.
    5. repec:cnb:ocpubv:rb15/2 is not listed on IDEAS
    6. Manjón Álvarez, Adrián M., 2018. "Elasticidades tributarias dinámicas: evidencias a corto plazo y largo plazo en Bolivia (1990-2018)," Revista Latinoamericana de Desarrollo Economico, Carrera de Economía de la Universidad Católica Boliviana (UCB) "San Pablo", issue 31, pages 100-134, May.
    7. Desislava Stoilova & Ivan Todorov, 2021. "Fiscal policy and economic growth: Evidence from Central and Eastern Europe," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 7(2), pages 146-159.
    8. Michal Krajňák, 2021. "Evaluation the impact of the personal income tax reform in the Czech Republic in 2021 on effective tax rate and tax progressivity," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 7(2), pages 134-145.
    9. repec:cnb:ocpubv:rb16/2 is not listed on IDEAS
    10. repec:cnb:ocpubv:rb16/1 is not listed on IDEAS
    11. repec:cnb:ocpubv:rb15/1 is not listed on IDEAS
    12. Bernd Hayo & Sascha Mierzwa & Umut Ünal, 2023. "Estimating policy-corrected long-term and short-term tax elasticities for the USA, Germany, and the United Kingdom," Empirical Economics, Springer, vol. 64(1), pages 465-504, January.
    13. Charalambos Pattichis, 2022. "Are tax revenue elasticities consistent with a balanced government budget? An analysis and implications for six CEE countries," Economics and Business Letters, Oviedo University Press, vol. 11(1), pages 33-40.
    14. Maria O. Kakaulina, 2021. "Projected shortfall in personal income tax revenues of regional governments in Russia due to the COVID-19 pandemic," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 7(1), pages 39-54.
    15. repec:cnb:ocpubv:rb14/1 is not listed on IDEAS
    16. Koester, Gerrit & Priesmeier, Christoph, 2017. "Revenue elasticities in euro area countries," Working Paper Series 1989, European Central Bank.
    17. Jaime Flórez Bolanos, 2020. "Los efectos tributarios en los sectores de la economía colombiana," Apuntes del Cenes, Universidad Pedagógica y Tecnológica de Colombia, vol. 39(70), pages 141-166, July.
    18. repec:cnb:ocpubv:rb14/2 is not listed on IDEAS
    19. Narayan Sethi & Saileja Mohanty & Sanhita Sucharita & Nanthakumar Loganathan, 2020. "Tax Reform And Economic Growth Nexus In India: Evidence From The Cointegration And Rolling-Window Causality," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(06), pages 1699-1725, December.
    20. Jiří Schwarz & Martin Pospíšil, 2018. "Bankruptcy, Investment, and Financial Constraints: Evidence from the Czech Republic," Eastern European Economics, Taylor & Francis Journals, vol. 56(2), pages 99-121, March.
    21. Lagravinese, Raffaele & Liberati, Paolo & Sacchi, Agnese, 2020. "Tax buoyancy in OECD countries: New empirical evidence," Journal of Macroeconomics, Elsevier, vol. 63(C).
    22. Niall Conroy, 2023. "The Role of Elasticities in Forecasting Irish Income Tax Revenue," The Economic and Social Review, Economic and Social Studies, vol. 54(2), pages 149-172.

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    More about this item

    Keywords

    Elasticity; error correction models; tax base; tax revenue;
    All these keywords.

    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
    • H27 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other Sources of Revenue

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