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Tax Revenue Elasticities Corrected for Policy Changes in the EU

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  • Gilles Mourre
  • Savina Princen

Abstract

This paper investigates how tax revenue elasticities develop with respect to their tax base and analyses the specific impact of the business cycle. The main novelty of the paper is to use revenue data net of discretionary tax measures. The latter come from a new database, filled by Member States and managed by the European Commission (DG ECFIN). Based on an EU country panel for the period 2001-13, we estimate short-term and long-term revenue elasticities for consumption taxes, social security contributions, personal income taxes and corporate income taxes, using a wide range of specifications. The estimated revenue-to-base elasticities are broadly in line with the results found in previous research, although the robustness of the estimates varies across tax categories. Then, we add different indicators of the business cycle to test its specific influence on the short-term dynamics of revenue-to-base elasticities. This confirms the existence of a specific impact of the business cycle on short-term revenue elasticities – beyond the direct effect on the tax base – for all revenue categories, except for consumption taxes. Corporate income taxes appear to be the most cyclically-dependent tax category, followed by personal income taxes, for which estimation results turn out particularly robust.

Suggested Citation

  • Gilles Mourre & Savina Princen, 2015. "Tax Revenue Elasticities Corrected for Policy Changes in the EU," European Economy - Discussion Papers 018, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:dispap:018
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    References listed on IDEAS

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    Cited by:

    1. Gilles Mourre & Aurélien Poissonnier, 2019. "What Drives the Responsiveness of the Budget Balance to the Business Cycle in EU Countries?," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 54(4), pages 237-249, July.
    2. 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).
    3. Francesco Berardini & Fabrizio Renzi, 2022. "Mind the Gap! The (unexpected) impact of COVID-19 pandemic on VAT revenue in Italy," Questioni di Economia e Finanza (Occasional Papers) 669, Bank of Italy, Economic Research and International Relations Area.
    4. Alina Georgeta AILINCA, 2022. "Assessing Some Fiscal Indicators In The European Union In The Period 2000-2021," Contemporary Economy Journal, Constantin Brancoveanu University, vol. 7(1), pages 28-37.
    5. Marius Clemens & Werner Röger, 2022. "Durable Consumption, Limited VAT Pass-Through and Stabilization Effects of Temporary VAT Changes," Discussion Papers of DIW Berlin 2004, DIW Berlin, German Institute for Economic Research.
    6. Marius Clemens & Werner Röger, 2021. "Temporary VAT Reduction during the Lockdown," Discussion Papers of DIW Berlin 1944, DIW Berlin, German Institute for Economic Research.
    7. Clemens, Marius & Röger, Werner, 2021. "Temporary VAT Reduction during the Lockdown - Evidence from Germany," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242459, Verein für Socialpolitik / German Economic Association.
    8. 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.
    9. Sean Dougherty & Pietrangelo Biase, 2021. "Who absorbs the shock? An analysis of the fiscal impact of the COVID-19 crisis on different levels of government," International Economics and Economic Policy, Springer, vol. 18(3), pages 517-540, July.
    10. Koester, Gerrit & Priesmeier, Christoph, 2017. "Revenue elasticities in euro area countries," Working Paper Series 1989, European Central Bank.

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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