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Adjusting fiscal balances for the business cycle: New tax and expenditure elasticity estimates for OECD countries

Author

Listed:
  • Robert Price
  • Thai-Thanh Dang
  • Jarmila Botev

    (OECD)

Abstract

This paper re-estimates the elasticities of government revenue and expenditure items with respect to the output gap for OECD countries. These elasticities are used by the OECD to calculate cyclically adjusted fiscal balances. The study updates the earlier 2005 study using the most recent datasets and tax codes, the coverage being confined in this paper to 35 countries, the 34 OECD member states and Latvia. The same two-step methodology is retained: revenue and expenditure elasticities with respect to the output gap being defined as the product of, first, the elasticities of individual revenue and expenditure items with respect to their bases and, second, the elasticities of these bases with respect to the output gap. A number of refinements and methodological improvements are made relative to the 2005 study. The revisions to individual elasticities relative to the 2005 vintage are significant in a number of cases but do not follow a clear pattern across countries, except for the elasticities of corporate income tax revenue which are revised up in most cases. Correction des soldes budgétaires en fonction des variations cycliques : Nouvelles estimations d'élasticités des impôts et des dépenses pour les pays de l'OCDE Cet article estime les élasticités des composantes de revenus et de dépenses des administrations publiques par rapport aux écarts de production pour les pays de l’OCDE. Ces élasticités sont utilisées par l’OCDE pour calculer les soldes financiers des administrations publiques corrigés du cycle économique. Cette étude est une mise à jour des travaux parus en 2005, elle utilise les données et les codes d’impôts les plus récentes , et couvre 35 pays, à savoir les 34 pays membres ainsi que la Lettonie. La méthode en deux étapes a été conservée : les élasticités par rapport aux écarts de production étant définies comme le produit , dans un premier temps, des élasticités des composantes individuelles de recettes et de dépenses par rapport à leurs assiettes , et dans un deuxième temps des élasticités de ces assiettes par rapport aux écarts de production. Des modifications et des améliorations méthodologiques ont été apportées depuis l’étude de 2005. Les révisions d’élasticités par rapport à la version de 2005 sont importantes dans certains cas mais ne suivent pas un schéma type pour tous les pays, à l’exception des élasticités des impôts sur les bénéfices des sociétés qui ont été révisées à la hausse dans la plupart des cas.

Suggested Citation

  • Robert Price & Thai-Thanh Dang & Jarmila Botev, 2015. "Adjusting fiscal balances for the business cycle: New tax and expenditure elasticity estimates for OECD countries," OECD Economics Department Working Papers 1275, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:1275-en
    DOI: 10.1787/5jrp1g3282d7-en
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    More about this item

    Keywords

    ajustement cyclique; automatic stabilisers; budget elasticity; cyclically adjusted; fiscal surveillance; stabilisateurs automatiques; surveillance fiscale; élasticité budgétaire;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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