Tax Revenue Response to the Business Cycle

IMF Working Papers, March 1, 2010

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Tax Revenue Response to the Business Cycle

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Bibliographic details

• Authors: Cemile Sancak, Jing Xing, Ricardo Velloso
• Published: March 1, 2010
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451982145.001

Summary and Main Findings

• The paper estimates the relationship between tax revenue efficiency and the output gap and finds a positive and significant relationship between these variables.
• Results are consistent for quarterly and annual data, and across advanced and developing economies.
• Worsening (improvement) in the VAT C-efficiency is driven by shifts in consumption patterns and changes in tax evasion during contractions (expansions).
• Key policy implication: 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.

Authors and Publication

• By Cemile Sancak, Jing Xing, Ricardo Velloso
• March 1, 2010
• IMF Working Papers, Issue: 071, Series: Working Paper No. 2010/071

Scope and Subjects

• Subject: Consumption, National accounts, Output gap, Production, Revenue administration, Revenue performance assessment, Tax efficiency, Taxes, Value-added tax
• Keywords: Baltics, business cycle, C-efficiency, Consumption, estimation result, Output gap, output gap coefficient, output gap variable, Tax efficiency, tax revenue, tax revenue efficiency, tax revenue forecasting, Value-added tax, VAT C-efficiency, VAT elasticity, WP

Policy Recommendations and Implications

• Incorporate cyclical effects on tax revenue efficiency into revenue forecasting and policy analysis rather than relying solely on long-run revenue elasticities.
• Account for shifts in consumption patterns and changes in tax evasion that alter VAT C-efficiency across contractions and expansions.

Tax Revenue Response to the Business Cycle, IMF Working Paper No. 2010/071 (March 1, 2010)

Content in this bundle

• _wp1071 - Section VI presents the results for VAT C-efficiency, and section VII for PIT and SSC
  • _wp1071 - Section VI presents the results for VAT C-efficiency, and section VII for PIT and SSC (Markdown version)
  • _wp1071 - Section VI presents the results for VAT C-efficiency, and section VII for PIT and SSC (PDF)