Tax Revenue Response to the Business Cycle

Author/Editor:

Cemile Sancak ; Jing Xing ; Ricardo Velloso

Publication Date:

March 1, 2010

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:

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.

Series:

Working Paper No. 2010/071

Subject:

Consumption National accounts Output gap Production Revenue administration Revenue performance assessment Tax efficiency Taxes Value-added tax

English

Publication Date:

March 1, 2010

ISBN/ISSN:

9781451982145/1018-5941

Stock No:

WPIEA2010071

Pages:

22

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