Dynamic Elasticities of Tax Revenue: Evidence from the Czech Republic

Tomas Havranek, Zuzana Irsova and Jiří Schwarz

Working Papers from Czech National Bank, Research and Statistics Department

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.

Keywords: Elasticity; error correction models; tax base; tax revenue (search for similar items in EconPapers)
JEL-codes: H24 H25 H27 (search for similar items in EconPapers)
Date: 2015-11
New Economics Papers: this item is included in nep-pbe and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Dynamic elasticities of tax revenue: evidence from the Czech Republic (2016)
Working Paper: Dynamic Elasticities of Tax Revenue: Evidence from the Czech Republic (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2015/08

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