Estimating Tax Revenue Elasticities in Slovakia
|Thesis title in Czech:||Estimating Tax Revenue Elasticities in Slovakia|
|Thesis title in English:||Estimating Tax Revenue Elasticities in Slovakia|
|Key words:||taxes, Tax Revenue Elasticity, macroeconomics, Personal Income Tax, Corporate Income Tax, Value Added Tax, Slovakia, Slovak Republic|
|English key words:||taxes, Tax Revenue Elasticity, macroeconomics, Personal Income Tax, Corporate Income Tax, Value Added Tax, Slovakia, Slovak Republic|
|Academic year of topic announcement:||2015/2016|
|Type of assignment:||diploma thesis|
|Department:||Institute of Economic Studies (23-IES)|
|Supervisor:||prof. doc. PhDr. Tomáš Havránek, Ph.D.|
|Author:||hidden - assigned by the advisor|
|Date of registration:||15.04.2016|
|Date of assignment:||15.04.2016|
|Date and time of defence:||22.06.2017 08:30|
|Venue of defence:||Opletalova - Opletalova 26, O206, Opletalova - místn. č. 206|
|Date of electronic submission:||12.05.2017|
|Date of proceeded defence:||22.06.2017|
|Reviewers:||doc. Petr Janský, M.Sc., Ph.D.|
|HAVRANEK, T., Z. IRSOVA & J. SCHWARZ (2015): “Dynamic Elasticities of Tax Revenue: Evidence from the Czech Republic” IES Working Paper 23/2015. IES FSV. Charles University. Available at: http://ies.fsv.cuni.cz
BRUCE, D., W. F. FOX & M. H. TUTTLE (2006): “Tax Base Elasticities: A Multi-State Analysis of Long-Run and Short-Run Dynamics” Southern Economic Journal 73(2): pp. 315-341. Available at: http://www.jstor.org/stable/20111894
JOOSTE, C.: “Estimating Tax Elasticities: The Case of Corporate Income Tax, Value Added Tax and Personal Income Tax in South Africa”. Available at: http://www.africametrics.org/documents/conference09/papers/Jooste.pdf
BOUTHEVILLAIN, C. & others (2001): “Cyclically Adjusted Budget Balances: An Alternative Approach” ECB Working Paper No. 77. ECB. Frankfurt. Available at: https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp077.pdf?759ddbfc3896a33f9555f23aeeb8a675
PWC (2013): “Pocket Tax Book 2013: A Practical Guide to the Slovak Tax System”. Available at: http://www.pwc.com/sk/en/publikacie/assets/2013/pocket-tax-book_2013.pdf
GIROUARD, N. & C. ANDRE (2005): “Measuring Cyclically-adjusted Budget Balances for OECD Countries” OECD Economics Department Working Papers 434. OECD Publishing.
BEZDEK, V., K. DYBCZAK & A. K. KREJDL (2003): “Czech Fiscal Policy: Introductory Analysis” Working Papers 2003/07. Czech National Bank. Research Department.
|Preliminary scope of work in English|
To ensure a sufficient tax revenue to finance government service delivery is undoubtedly one of the most important tasks of every economy that does not get as much attention as it deserves, and when it does, the effect of tax reforms and tax policy changes is often omitted which leads to inconsistency. This inconsistency then significantly decreases the usability of the estimated elasticities. A clear understanding of the dynamic properties of revenue structures is crucial when trying to ensure a long-term sustainable tax revenue. This can be achieved only by estimating both short-term (instantaneous) and long-term (equilibrium) tax revenue elasticities.
These estimations often suffer from shortage of proper data but correctly estimated tax revenue elasticities are crucial for economies of all countries, especially the emerging ones for which it is typical that their tax systems change frequently.
Unfortunately, a study focusing on estimation these kind of elasticities in Slovakia is still missing. However, there are many studies applied on tax system of other countries which might be very helpful while estimating tax revenue elasticities in Slovakia in the most proper way. In my diploma thesis I will mostly use a paper written by Havránek, Iršová & Schwarz (2015) where they use a special, rare data to implement the effects of tax reforms and tax changes into the estimation. Other papers used while writing my diploma thesis will be for example papers from the following authors: Bruce, Fox & Tuttle (2006), Girouard & Andre (2005), Bouthevillain & others (2001) or Bezdek, Dybczak & Krejdl (2003).
1. Hypothesis #1: The long-term and the short-term tax revenue on Personal Income Tax elasticities are significantly different.
2. Hypothesis #2: The long-term and the short-term tax revenue on Corporate Income Tax elasticities are significantly different.
3. Hypothesis #3: The long-term and the short-term tax revenue on Value Added Tax elasticities are significantly different.
4. Hypothesis #4: The short-term tax revenue on Personal Income Tax elasticity is significantly different from one.
5. Hypothesis #5: The short-term tax revenue on Corporate Income Tax elasticity is significantly different from one.
6. Hypothesis #6: The short-term tax revenue on Value Added Tax elasticity is significantly different from one.
In my diploma thesis I will firstly focus on detailed description of a Slovak tax system and its history and the majority of my diploma thesis will be devoted to estimating short-term (instantaneous) and long-term (equilibrium) elasticities of three tax categories that generate the majority of tax revenue in Slovakia – Personal Income Tax, Corporate Income Tax and Value Added Tax. Also I will try to adjust my analysis for tax reform from year 2004 and other tax changes.
Many of the empirical studies on tax revenue elasticities do not adjust the data for the effects of tax reforms and tax changes which breaks the ceteris paribus condition important for a correct identification of the elasticity coefficients. Therefore, the crucial assumption of a successful estimation of tax revenue elasticities is working with valuable data. I will try to obtain the data from the Ministry of Finance of the Slovak Republic, The National Bank of Slovakia and from the Statistical Office of the Slovak Republic.
After obtaining the data I will firstly have to test the null hypotheses about non-stationarity and cointegration on all the time series in my dataset to find out if OLS is or is not an adequate method of estimation. Otherwise other, more advanced estimation methods will have to be used. Since the Slovakia has been existing only for 23 years, using quarterly rather than annual data could bring more significant results but it would also cause a strong seasonality issue.
After all, the estimation method to be used and the resulting issues to be solved will be strongly implied by the quality of data I will be able to obtain, and therefore I will do my best to start actively seeking the right data as soon as possible.
Tax revenue elasticities have a widely usage for both fiscal and monetary authorities. They are used for forecasting of future government revenue or for cyclical adjustment of budget deficit and they are also very important for calculating the tax multipliers.
As has already been explained in the Motivation part, it is very important to focus on both the short-run (instantaneous) and the long-run (equilibrium) elasticities to make the estimation of the tax revenue elasticities valuable. Attention has to be paid also to the effects of tax reforms and other tax changes. My master´s thesis could be the first paper in Slovakia to focus on all of this utilizing the previous estimations of tax revenue elasticities of other countries to do my estimation in the most proper way.
1. Introduction of the topic
2. Literature review
3. Taxation in Slovakia (theory)
4. Detailed description of the data and the analysis
5. Evaluation of the results