Abstract

Tax revenue elasticities with respect to tax bases are key parameters for the modeling of public finances. Yet the existing studies estimating these elasticities for post-transition countries disregard the effects of tax reforms on tax revenue, which renders their estimates inconsistent. We use a unique data set from the Czech Republic to account for the effects of reforms and estimate both short- and long-run tax revenue elasticities. Our results suggest that the long-run elasticities are 1.4 for wage tax, 0.9 for value added tax, 1.7 for profit tax, and 1 for social security contributions. The adjustment process for value added tax and social security contributions is fast, but for the remaining two categories it is important to distinguish between the short- and long-run elasticities: the initial response of revenue to changes in the bases is weak. In the case of wage tax it takes half a year for the elasticity to surpass unity.
The impulse response of Czech wage tax revenue to a one-percentage-point shock to its base, rising over ten quarters towards a long-run elasticity of 1.4
Fig: The impulse response of wage tax revenue to a one-percentage-point shock to its base.

The full text on this site is Czech National Bank Working Paper 8/2015, the openly available version. The article was published in Applied Economics in 2016.

Reference: Tomas Havranek, Zuzana Irsova, Jiri Schwarz (2016), "Dynamic elasticities of tax revenue: evidence from the Czech Republic." Applied Economics 48(60): 5866-5881. doi.org/10.1080/00036846.2016.1186796

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How to cite

Tomas Havranek, Zuzana Irsova, Jiri Schwarz (2016), "Dynamic elasticities of tax revenue: evidence from the Czech Republic." Applied Economics 48(60): 5866-5881. doi.org/10.1080/00036846.2016.1186796

BibTeX 
@article{havranek2016taxrev,
  author  = {Tomas Havranek and Zuzana Irsova and Jiri Schwarz},
  title   = {Dynamic elasticities of tax revenue: evidence from the Czech Republic},
  journal = {Applied Economics},
  year    = {2016},
  doi     = {10.1080/00036846.2016.1186796},
}