U.S. Revenue Surprises: Are Happy Days Here to Stay?

Author/Editor:

Koshy Mathai ; Andrew J Swiston ; Martin Mühleisen

Publication Date:

June 1, 2007

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

A key question for U.S. policymakers is whether the recent strength in federal revenue is likely to continue. This question is addressed through an econometric analysis of the determinants of tax revenue, using time series that are adjusted for tax policy changes. The results suggest that growth in corporate profits and capital gains each contributed forty percent of the increase in the revenue-to-GDP ratio from 2004-2006, and rising income inequality explains much of the rest. While part of the revenue rise is the result of structural changes taking place in the U.S. economy, some of the recent buoyancy is likely to prove temporary, reflecting the highly cyclical nature of these variables.

Series:

Working Paper No. 2007/143

Subject:

Income distribution Income tax systems Personal income Revenue administration Tax elasticity

English

Publication Date:

June 1, 2007

ISBN/ISSN:

9781451867077/1018-5941

Stock No:

WPIEA2007143

Pages:

29

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