Short- and Long-Run Tax Elasticities: The Case of the Netherlands

43 Pages Posted: 28 Jun 2007

Date Written: June 2007

Abstract

This paper provides estimates for the base elasticities of Dutch taxes, paying particular attention to differences between short- and long-term elasticities, and allowing for asymmetric adjustment. Estimates are presented for five tax categories for the period 1970-2005, after making appropriate corrections for effects of discretionary tax measures. The empirical results indicate that short-term elasticities often are lower than long-term ones, notably when taxes are subdued. Consequently, shocks to tax revenues tend to be aggravated by the dynamics of short-term elasticities. Ignoring differences between short- and long-term elasticities contributes to revenue 'surprises' and an incorrect assessment of the fiscal stance.

Keywords: Tax revenue, income elasticity, fiscal indicators, The Netherlands

JEL Classification: H2, H62, H68

Suggested Citation

Wolswijk, Guido, Short- and Long-Run Tax Elasticities: The Case of the Netherlands (June 2007). ECB Working Paper No. 763, Available at SSRN: https://ssrn.com/abstract=989727

Guido Wolswijk (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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