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Revenue elasticities in euro area countries

Gerrit Koester and Christoph Priesmeier ()

No 1989, Working Paper Series from European Central Bank

Abstract: Revenue elasticities play a key role in forecasting, monitoring and analysing public finances under the European fiscal framework, which largely builds on cyclically adjusted indicators. This paper investigates whether there is evidence for dynamic – instead of the currently used static – elasticities in euro area countries. Applying country-specific error correction models we reveal important differences across countries. For a majority of euro area Member States we find evidence for dynamic revenue elasticities. We show that the application of such dynamic elasticities could substantially reduce forecast errors in several countries – with the evidence being stronger based on ex-post than based on real-time data. JEL Classification: E62, H68

Keywords: error correction models; EU fiscal surveillance; real-time data; revenue elasticities; tax forecasts (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec
Date: 2017-01
Note: 1006642
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