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Tax Revenue Response to the Business Cycle
Author:
Ms. Cemile Sancak null

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Jing Xing null

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Ricardo Velloso
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Series:
IMF Working Papers
Volume/Issue:
Volume 2010: Issue 071
Language:
English
Publication Date:
01 Mar 2010
DOI:
https://doi.org/10.5089/9781451982145.001
ISBN:
9781451982145
ISSN:
1018-5941
Pages:
22
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
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund