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The Impact of the Business Cycle on Elasticities of Tax Revenue in Latin America

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  • Roberto Machado
  • José Zuloeta
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    Abstract

    This paper estimates short-run and long-run elasticities of tax revenue with respect to GDP in eight Latin American countries using quarterly data. Taxes considered are corporate income tax (CIT), personal income tax (PIT), value-added tax (VAT), and overall taxes. Results indicate that long-run elasticities are statistically and economically larger than 1, whereas short-run elasticities appear not to be statistically different from zero in the majority of cases. Tax systems seem very elastic in Argentina, Colombia, Ecuador, Peru, and Venezuela. The CIT exhibits the largest estimated long-run elasticity in most countries. Focusing on short-run elasticities that show statistical significance, only the CIT in Colombia and the PIT in Brazil and Colombia show larger fluctuations over the business cycle than growth potential in the long run. Overall, our results indicate that tax systems in Latin America are significantly more elastic than previous estimations.

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    File URL: http://www.iadb.org/document.cfm?pubDetail=1&id=37094670
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    Bibliographic Info

    Paper provided by Inter-American Development Bank in its series IDB Publications with number 76398.

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    Date of creation: Sep 2012
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    Handle: RePEc:idb:brikps:76398

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    Related research

    Keywords: Economic Development & Growth; Production & Business Cycles; Tax revenue; Elasticities; Business cycles;

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