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The Composition of Government Revenues in Cyprus, 2002-2008

Author

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  • Polyvios S. Eliofotou

    (European Commission)

Abstract

Between 2002 and 2008 the Cypriot economy has been growing at an annual average rate of about 3½% in real terms, significantly above euro area. In parallel, total tax receipts grew on average at 11% per year, leading to an average annual elasticity with respect to GDP of about 1½. This increase in tax revenues has contributed significantly to the improvement of the Cypriot budget balance. The purpose of this paper is to assess the extent to which the tax-revenue increase is of a permanent nature or is to a large extent associated with temporary changes in GDP composition. The conclusion is that in Cyprus, a large part of the increases in tax revenues is structural, being the result of tax harmonisation measures adopted in the run-up to EU accession. However, the developments which led to the remarkable revenue performance in 2007 might be of a temporary nature, driven by a short lived asset boom. This, at the current juncture when a significant slowdown of the Cyprus economy is in sight and tax revenues could shrink, calls for maintaining fiscal prudence, especially in the light of the high external imbalance.

Suggested Citation

  • Polyvios S. Eliofotou, 2009. "The Composition of Government Revenues in Cyprus, 2002-2008," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 3(1), pages 85-98, June.
    • Handle: RePEc:erc:cypepr:v:3:y:2009:i:1:p:85-98
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    File URL: https://www.ucy.ac.cy/erc/documents/FullTextEliofotou.pdf
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    References listed on IDEAS

    as
    1. Carlos Martinez-Mongay, 2008. "Spain and Portugal in the Euro Area: Lessons for Cyprus," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 2(1), pages 33-62, June.
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