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Dynamic Elasticities of Tax Revenue: Evidence from the Czech Republic

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  • Tomas Havranek
  • Zuzana Irsova
  • Jiri Schwarz

Abstract

Tax revenue elasticities with respect to tax bases are key parameters for the modeling of public finances. Yet the existing studies estimating these elasticities for post-transition countries disregard the effects of tax reforms on tax revenue, which renders their estimates inconsistent. We use a unique data set from the Czech Republic to account for the effects of reforms and estimate both short- and long-run tax revenue elasticities. Our results suggest that the long-run elasticities are 1.4 for wage tax, 0.9 for value added tax, 1.7 for profit tax, and 1 for social security contributions. The adjustment process for value added tax and social security contributions is fast, but for the remaining two categories it is important to distinguish between the short- and long-run elasticities: the initial response of revenue to changes in the bases is weak. In the case of wage tax it takes half a year for the elasticity to surpass unity.

Suggested Citation

  • Tomas Havranek & Zuzana Irsova & Jiri Schwarz, 2015. "Dynamic Elasticities of Tax Revenue: Evidence from the Czech Republic," Working Papers 2015/08, Czech National Bank.
    • Handle: RePEc:cnb:wpaper:2015/08
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    2. Manjón Álvarez, Adrián M., 2018. "Elasticidades tributarias dinámicas: evidencias a corto plazo y largo plazo en Bolivia (1990-2018)," Revista Latinoamericana de Desarrollo Economico, Instituto de Investigaciones Socio-Económicas (IISEC-UCB), Universidad Católica Boliviana, issue 31, pages 100-134, May.
    3. Vaclav Broz & Dominika Kolcunova & Simona Malovana & Lukas Pfeifer, 2018. "Risk-Sensitive Capital Regulation," Occasional Publications - Edited Volumes, Czech National Bank, edition 1, volume 16, number rb16/1 edited by Simona Malovana & Jan Frait, March.
    4. Kamil Galuscak & Ivan Sutoris & Oxana Babecka Kucharcukova & Jan Bruha & Filip Novotny & Volha Audzei & Frantisek Brazdik, 2017. "Trade and External Relations," Occasional Publications - Edited Volumes, Czech National Bank, edition 1, volume 15, number rb15/1 edited by Jan Babecky & Jan Bruha, March.
    5. Koester, Gerrit & Priesmeier, Christoph, 2017. "Revenue elasticities in euro area countries," Working Paper Series 1989, European Central Bank.
    6. Miroslav Plasil & Jakub Seidler & Petr Hlavac & Volha Audzei & Jakub Mateju & Michal Kejak & Simona Malovana & Jan Frait, 2016. "Financial Cycles and Macroprudential and Monetary Policies," Occasional Publications - Edited Volumes, Czech National Bank, edition 2, volume 14, number rb14/2 edited by Jan Babecky & Michal Hlavacek, March.
    7. Jiří Schwarz & Martin Pospíšil, 2018. "Bankruptcy, Investment, and Financial Constraints: Evidence from the Czech Republic," Eastern European Economics, Taylor & Francis Journals, vol. 56(2), pages 99-121, March.
    8. Lagravinese, Raffaele & Liberati, Paolo & Sacchi, Agnese, 2020. "Tax buoyancy in OECD countries: New empirical evidence," Journal of Macroeconomics, Elsevier, vol. 63(C).
    9. Desislava Stoilova, 2017. "Tax structure and economic growth: Evidence from the European Union," Contaduría y Administración, Accounting and Management, vol. 62(3), pages 1041-1057, Julio-Sep.
    10. Jan Bruha & Jaromir Tonner & Mojmir Hampl & Tomas Havranek & Mirko Djukic & Tibor Hledik & Jiri Polansky & Ljubica Trajcev & Jan Vlcek & Ruslan Aliyev & Dana Hajkova & Ivana Kubicova, 2017. "Effects of Monetary Policy," Occasional Publications - Edited Volumes, Czech National Bank, edition 2, volume 15, number rb15/2 edited by Jan Babecky & Michal Franta & Jan Bruha, March.
    11. Michal Franta & Tibor Hledik & Jan Vlcek & Michal Dvorak & Zlatuse Komarkova & Adam Kucera & Vaclav Broz & Michal Hlavacek, 2018. "Interest Rates," Occasional Publications - Edited Volumes, Czech National Bank, edition 2, volume 16, number rb16/2 edited by Jan Babecky & Volha Audzei, March.
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    More about this item

    Keywords

    Elasticity; error correction models; tax base; tax revenue;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H27 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other Sources of Revenue

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