Tax Revenue Response to the Business Cycle

Cemile Sancak, Jing Xing and Ricardo Velloso

No 2010/071, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; tax revenue; output gap coefficient; tax revenue forecasting; business cycle; tax revenue efficiency; C-efficiency; VAT elasticity; VAT C-efficiency; estimation result; output gap variable; Value-added tax; Output gap; Tax efficiency; Consumption; Baltics (search for similar items in EconPapers)
Pages: 22
Date: 2010-03-01
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Citations: View citations in EconPapers (46)

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