Tax Revenue Response to the Business Cycle

By Cemile Sancak, Jing Xing, Ricardo Velloso

March 1, 2010

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Format: Chicago

Cemile Sancak, Jing Xing, and Ricardo Velloso. Tax Revenue Response to the Business Cycle, (USA: International Monetary Fund, 2010) accessed December 21, 2024

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

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.

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

Publication Details

Pages:

22
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/071
Stock No:

WPIEA2010071
ISBN:

9781451982145
ISSN:

1018-5941

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