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Shifting from Labor to Consumption Taxes: The Impact on Tax Revenue Volatility

Author

Listed:
  • Tomasz Jędrzejowicz
  • Kamila Sławińska

Abstract

This paper provides estimates of tax revenues with respect to their individual tax bases, focusing on differences between long- and short‑run elasticities and allowing for asymmetries in the speed of adjustment as well as in short‑run volatility. Estimates are presented for two major tax categories in Poland- value added tax, and employer and employee social contributions for the 1999–2013 period. Our results indicate that long‑run elasticities are close to unity. An analysis of short‑run elasticities based on considering their asymmetric responses to economic fluctuations, complemented by a rolling regression exercise, suggests that VAT revenues are subject to greater volatility. Therefore, a shift in taxation from labor income to consumption increases the sensitivity of public finances to the business cycle.

Suggested Citation

  • Tomasz Jędrzejowicz & Kamila Sławińska, 2014. "Shifting from Labor to Consumption Taxes: The Impact on Tax Revenue Volatility," Gospodarka Narodowa, Warsaw School of Economics, issue 6, pages 81-101.
  • Handle: RePEc:sgh:gosnar:y:2014:i:6:p:81-101
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    References listed on IDEAS

    as
    1. Søren Johansen & Rocco Mosconi & Bent Nielsen, 2000. "Cointegration analysis in the presence of structural breaks in the deterministic trend," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 216-249.
    2. Koester, Gerrit B. & Priesmeier, Christoph, 2012. "Estimating dynamic tax revenue elasticities for Germany," Discussion Papers 23/2012, Deutsche Bundesbank.
    3. Sobel, Russell S. & Holcombe, Randall G., 1996. "Measuring the Growth and Variability of Tax Bases Over the Business Cycle," National Tax Journal, National Tax Association;National Tax Journal, vol. 49(4), pages 535-552, December.
    4. Søren Johansen & Rocco Mosconi & Bent Nielsen, 2000. "Cointegration analysis in the presence of structural breaks in the deterministic trend," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 216-249.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    fiscal policy; tax revenue elasticities; value added tax; social contributions;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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