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Tax Revenue Elasticities Corrected for Policy Changes in the EU

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  • Gilles Mourre
  • Savina Princen

Abstract

This paper investigates how tax revenue elasticities develop with respect to their tax base and analyses the specific impact of the business cycle. The main novelty of the paper is to use revenue data net of discretionary tax measures. The latter come from a new database, filled by Member States and managed by the European Commission (DG ECFIN). Based on an EU country panel for the period 2001-13, we estimate short-term and long-term revenue elasticities for consumption taxes, social security contributions, personal income taxes and corporate income taxes, using a wide range of specifications. The estimated revenue-to-base elasticities are broadly in line with the results found in previous research, although the robustness of the estimates varies across tax categories. Then, we add different indicators of the business cycle to test its specific influence on the short-term dynamics of revenue-to-base elasticities. This confirms the existence of a specific impact of the business cycle on short-term revenue elasticities – beyond the direct effect on the tax base – for all revenue categories, except for consumption taxes. Corporate income taxes appear to be the most cyclically-dependent tax category, followed by personal income taxes, for which estimation results turn out particularly robust.

Suggested Citation

  • Gilles Mourre & Savina Princen, 2015. "Tax Revenue Elasticities Corrected for Policy Changes in the EU," European Economy - Discussion Papers 2015 - 018, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Handle: RePEc:euf:dispap:018
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    References listed on IDEAS

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    1. Koester, Gerrit & Priesmeier, Christoph, 2017. "Revenue elasticities in euro area countries," Working Paper Series 1989, European Central Bank.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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