Assessing the Variability of Indirect Tax Elasticity in Greece

Abstract

This paper shows that the variability of indirect tax elasticity relative to GDP has increased significantly in recent years in Greece. Based on this finding we show that the budgetary sensitivity of indirect taxes following a 1% change in real GDP has increased dramatically since 2010. This finding has substantial policy implications; failure to account for these higher elasticities will lead to recurrent revenue shortfalls requiring new policy measure to meet previously set fiscal targets. This could lead to a downward spiral of continuously declining economic activity, new revenue shortfalls and additional fiscal measures and so on.

Keywords: indirect taxes; elasticity; GDP; Greece

JEL Classification: C32; E32; H20; O52