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Government revenue in the wake of the pandemic. Tax residuals and inflation

Author

Listed:
  • Esteban García-Miralles

    (Banco de España)

  • Jorge Martínez Pagés

    (Banco de España)

Abstract

Rationale Following the COVID-19 pandemic, tax revenue has shown strong dynamism, increasing as a proportion of GDP by 3.7 percentage points since 2019. Understanding the nature of this dynamism is key to assessing Spanish fiscal policy. Takeaways •This article breaks down revenue growth into four explanatory factors: real economic activity, pricegrowth, the effect of fiscal measures and an unexplained component or tax residual. •The effect of prices (inflation) has been gaining weight and appears to account for somewhat morethan half of the revenue growth observed in 2022, especially from VAT and personal income tax. •It is estimated that 2.6 percentage points of the 3.7 percentage point increase in the revenue-to-GDPratio cannot be explained by the changes in economic activity, prices or the fiscal measures approved.In the absence of an explanation about the permanent or temporary nature of this phenomenon, theprinciple of prudence would advise against considering this increase in revenue to be permanent.

Suggested Citation

  • Esteban García-Miralles & Jorge Martínez Pagés, 2023. "Government revenue in the wake of the pandemic. Tax residuals and inflation," Economic Bulletin, Banco de España, issue 2023/Q1.
    • Handle: RePEc:bde:journl:y:2023:i:01:n:16
    DOI: https://doi.org/10.53479/29791
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    More about this item

    Keywords

    Taxes; government revenue; inflation; structural deficit; pandemic;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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