Revenue Elasticities in Euro Area Countries

30 Pages Posted: 3 Feb 2017

See all articles by Gerrit Koester

Gerrit Koester

European Central Bank (ECB)

Christoph Priesmeier

Government of the Federal Republic of Germany - German Federal Ministry of Finance

Date Written: January 20, 2017

Abstract

Revenue elasticities play a key role in forecasting, monitoring and analysing public finances under the European fiscal framework, which largely builds on cyclically adjusted indicators. This paper investigates whether there is evidence for dynamic – instead of the currently used static – elasticities in euro area countries. Applying country-specific error correction models we reveal important differences across countries. For a majority of euro area Member States we find evidence for dynamic revenue elasticities. We show that the application of such dynamic elasticities could substantially reduce forecast errors in several countries – with the evidence being stronger based on ex-post than based on real-time data.

Keywords: EU fiscal surveillance, revenue elasticities, error correction models, tax forecasts, real-time data

JEL Classification: E62, H68

Suggested Citation

Koester, Gerrit B. and Priesmeier, Christoph, Revenue Elasticities in Euro Area Countries (January 20, 2017). ECB Working Paper No. 1989, Available at SSRN: https://ssrn.com/abstract=2910897

Gerrit B. Koester (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Christoph Priesmeier

Government of the Federal Republic of Germany - German Federal Ministry of Finance ( email )

Wilhelmstrasse 97
Berlin, 10117
Germany

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