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Discretionary measures and tax revenues in the run-up to the financial crisis


  • Salvador Barrios
  • Raffaele Fargnoli


Summary for non-specialistsThis paper examines the influence of governments' discretionary measures on tax revenues and tax elasticity in the European Union during the run-up to the 2008/2009 global financial crisis which was characterised by large swings in tax revenues.Using data collected in the context of the Output Gap Working Group of the Economic Policy Committee we show that while discretionary measures have had a limited impact on tax yields, they have in some cases significantly affected tax elasticities and thereby altered the relationship between tax revenues and the business cycle which plays a key role in the EU fiscal surveillance framework. Furthermore we provide evidence on the pro-cyclical nature of discretionary measures affecting tax revenues whereby governments tend to implement tax cuts during expansionary phases while resorting to tax increases during slowdowns. More generally our results suggest that the availability of detailed projections on the impact of discretionary measures by broad tax category would be instrumental to a better monitoring of tax revenues developments in the EU in order to better identify the role played by non-policy factors (such as asset prices) in driving tax revenues. Given that the time span covered by this database is in most cases still relatively short (covering on average 7 to 8 years) future updates of the data would allow to further dig into the issue of the influence of discretionary measures on tax elasticities as well as to provide elements for a backward assessment of fiscal plans vs. outcome.

Suggested Citation

  • Salvador Barrios & Raffaele Fargnoli, 2010. "Discretionary measures and tax revenues in the run-up to the financial crisis," European Economy - Economic Papers 2008 - 2015 419, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Handle: RePEc:euf:ecopap:0419

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    Cited by:

    1. 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.
    2. Leon Bettendorf & Duncan van Limbergen, 2013. "The stability of tax elasticities in The Netherlands," CPB Discussion Paper 256, CPB Netherlands Bureau for Economic Policy Analysis.
    3. repec:esr:resser:rs59 is not listed on IDEAS
    4. Q. Lafféter & M. Pak, 2015. "Tax elasticity to business cycle: an overview of three taxes from 1979 to 2013 in France," Documents de Travail de la DESE - Working Papers of the DESE g2015-08, Institut National de la Statistique et des Etudes Economiques, DESE.
    5. Árpád Kovács & Péter Halmosi, 2012. "Similarities and Differences in European Crisis Management," Public Finance Quarterly, State Audit Office of Hungary, vol. 57(1), pages 9-27.

    More about this item


    financial crisis barrios Taxation discretionary measures fiscal policy financial crisis fiscal stance business cycle Fargnoli;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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