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Elasticity and Buoyancy of Taxation in Nepal: A Revisit of the Empirical Evidence

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  • Nepal Rastra Bank

    (Nepal Rastra Bank, Research Department)

Abstract

In this paper, we use autoregressive distributed lag (ARDL) approach to cointegration developed by Pesaran et al. (1999) to estimate the elasticity and buoyancy coefficients of various revenue heads. We find that long-run buoyancy coefficients are greater than unity for all revenue heads except for custom duty whereas elasticity coefficients except for VAT are smaller than unity. Shortrun buoyancy and elasticity coefficients for all revenue heads are found smaller than unity. We find OLS estimates of these coefficients to be spurious for the sample 1975-2016. These coefficients will be biased if data generating process (DGP) excludes tax exemption. All components of revenue besides income tax and VAT are found to be neutral to inflation. Empirical evidence suggests that custom reform should get top priority in the reform of revenue administration.

Suggested Citation

  • Nepal Rastra Bank, 2017. "Elasticity and Buoyancy of Taxation in Nepal: A Revisit of the Empirical Evidence," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 29(1), pages 19-32, April.
    • Handle: RePEc:nrb:journl:v:29:y:2017:i:1:p:19
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    References listed on IDEAS

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    1. Acharya, Hem, 2011. "The Measurement of Tax Elasticity in India: A Time Series Approach," MPRA Paper 47090, University Library of Munich, Germany.
    2. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    3. Upender, M., 2008. "Degree Of Tax Buoyancy In India : An Empirical Study," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 5(2).
    4. Faiz Bilquees, 2004. "Elasticity and Buoyancy of the Tax System in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 43(1), pages 73-93.
    5. Donald Bruce & William F. Fox & M. H. Tuttle, 2006. "Tax Base Elasticities: A Multi‐State Analysis of Long‐Run and Short‐Run Dynamics," Southern Economic Journal, John Wiley & Sons, vol. 73(2), pages 315-341, October.
    6. Syeda Fizza Gillani, 1986. "Elasticity and Buoyancy of Federal Taxes in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 25(2), pages 163-174.
    7. Neelam Timsina, 2007. "Tax Elasticity and Buoyancy in Nepal: A Revisit," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 19, pages 9-21, April.
    8. Rajaraman, Indira & Goyal, Rajan & Khundrakpam, Jeevan Kumar, 2006. "Tax Buoyancy Estimates for Indian States," MPRA Paper 51660, University Library of Munich, Germany, revised 2006.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Taxation; Buoyancy; Elasticity;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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