The stability of tax elasticities over the business cycle in European countries

Melisso Boschi () and Stefano d'Addona

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We estimate short- and long-run tax elasticities that capture the relationship between changes in national income and tax revenue. We show that the short-run tax elasticity changes according to the business cycle. We estimate a two state Markov-switching regression on a novel dataset of tax policy reforms in 15 European countries from 1980 to 2013, showing that the elasticities during booms and recessions are statistically (and often economically) different. The elasticities of (i) indirect taxes, (ii) social contributions, and (iii) corporate income taxes, tend to be larger during recessions. Tax elasticities for personal income tend to be more stable across the regimes. Estimates of long-run elasticities are in line with existing literature.

Keywords: Tax elasticity; Tax policy discretionary change; Business cycle; European economy; Markov-switching regimes (search for similar items in EconPapers)
JEL-codes: C24 C29 E32 E62 H20 H30 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2017-07
New Economics Papers: this item is included in nep-eec, nep-mac, nep-pbe and nep-pub
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The Stability of Tax Elasticities over the Business Cycle in European Countries (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2017-44

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