Are tax revenue elasticities consistent with a balanced government budget? An analysis and implications for six CEE countries

Abstract

Tax revenue elasticities are an important parameter in the management of the revenue side of the government budget as they provide information about the impact of economic growth on tax revenues and fiscal sustainability. A growing number of empirical studies have estimated such elasticities or buoyancies for different countries using various methods. This paper follows a novel approach of deriving tax revenue elasticities that are consistent with a balanced budget for six Central and Eastern European countries using data over the period 1995-2019. These derived elasticities were then compared to actual estimates reported in other studies. The main conclusion from this comparison is that, for most cases considered, tax revenues were responsive enough to economic growth to support fiscal sustainability.