Tax Revenue Response to the Business Cycle
This paper examines tax revenue during the business cycle by estimating the relationship between tax revenue efficiency and the output gap. We find a positive and significant relationship between these variables; results are consistent for quarterly and annual data, and across advanced and developing economies. We also find that a worsening (improvement) in the VAT C-efficiency is driven by shifts in consumption patterns and changes in tax evasion during contractions (expansions). A key implication is that, particularly during major economic booms and downturns, policy makers should look beyond simple, long-run revenue elasticities and incorporate into their analysis the effects of the economic cycle on tax revenue efficiency.
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- Joshua Aizenman & Yothin Jinjarak, 2008.
"The collection efficiency of the Value Added Tax: Theory and international evidence,"
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- Aizenman, Joshua & Jinjarak, Yothin, 2005. "The collection efficiency of the value added tax: theory and international evidence," Santa Cruz Department of Economics, Working Paper Series qt42d103zh, Department of Economics, UC Santa Cruz.
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- John Brondolo, 2009. "Collecting Taxes During an Economic Crisis; Challenges and Policy Options," IMF Staff Position Notes 2009/17, International Monetary Fund.
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