September 22, 2013

The stability of tax elasticities in The Netherlands

We estimate long-run and short-run elasticities of Value Added Tax and Personal Income Tax revenues with respect to their bases for the Netherlands.
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We find VAT elasticities around one in the long-run and short-run. The long-run PIT elasticity is significantly below one, while the short-run elasticity is around one. We experiment with alternative definitions of the tax base for both taxes. We first find that elasticity estimates remain unaffected by using a broader base for both taxes. Second, the conclusion on whether elasticities differ between `good' and `bad' times depends whether the definition of these regimes is based on the deviation of tax revenues from the long-run level or on the output gap. Third, stability over time cannot be rejected for all elasticities, except for the long-run PIT elasticity to the broad base.



Foto Leon Bettendorf
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Duncan van Limbergen Read more

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