We estimate short-and long-run tax elasticities that capture the relationship between changes in national income and tax revenue. We show that the shortrun tax elasticity changes according to the business cycle. We estimate a twostate Markov-switching regression on a novel data set of tax policy reforms in 15 European countries from 1980 to 2013, showing that the elasticities during booms and recessions are statistically (and often economically) different. The elasticities of personal income taxes, corporate income taxes, indirect taxes and social contributions tend to be larger during recessions. Estimates of long-run elasticities are in line with existing literature.
Policy pointsr Estimating the change in tax revenue induced by a change in income -the so-called tax elasticity -is fundamental for government revenue forecasts.
Fiscal Studiesr We use a two-state Markov-switching regression model that permits the tax elasticity to vary over the business cycle.r Our estimates show that there is a clear tendency for short-run elasticities of corporate income taxes, indirect taxes, social contributions and, to a lesser extent, personal income taxes to increase on average during recessions compared with booms.r The current EU framework requires member countries to estimate a cyclically adjusted budget balance and use constant tax elasticities. However, our results suggest that the elasticities change over the cycle and thus potentially complicate the cyclically adjusted balance estimation.
The aim of this paper is to look for evidence of financial contagion suffered by several countries as a result of the latest Argentine crisis. I focus my attention on a set of countries: Brazil, Mexico, Russia, Turkey, Uruguay, and Venezuela. I also focus exclusively on three financial markets: foreign exchange, stock exchange, and sovereign debt. In order to test the hypothesis of contagion, Vector Autoregression (VAR) models and instantaneous correlation coefficients corrected for heteroscedasticity are estimated. The analysis shows that there is no evdence of contagion. This result provides empirical support for the non-crisis-contingent theories of international financial contagion.
This paper quanti…es the relative contribution of domestic, regional and international factors to the ‡uctuation of domestic output in six key Latin American (LA) countries: Argentina, Bolivia, Brazil, Chile, Mexico and Peru. Using quarterly data over the period 1980:1-2003:4, a multi-variate, multicountry time series model was estimated to study the economic interdependence among LA countries and, in addition, between each of them and the three world largest industrial economies: the US, the Euro Area and Japan. Falsifying a common suspicion, it is shown that the proportion of LA countries' domestic output variability explained by industrial countries' factors is modest. By contrast, domestic and regional factors account for the main share of output variability at all simulation horizons. The implications for the choice of the exchange rate regime are also discussed.
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