Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154422
Authors: 
Koester, Gerrit
Priesmeier, Christoph
Year of Publication: 
2017
Series/Report no.: 
ECB Working Paper 1989
Abstract: 
Revenue elasticities play a key role in forecasting, monitoring and analysing public finances under the European fiscal framework, which largely builds on cyclically adjusted indicators. This paper investigates whether there is evidence for dynamic – instead of the currently used static – elasticities in euro area countries. Applying country-specific error correction models we reveal important differences across countries. For a majority of euro area Member States we find evidence for dynamic revenue elasticities. We show that the application of such dynamic elasticities could substantially reduce forecast errors in several countries – with the evidence being stronger based on ex-post than based on real-time data.
Subjects: 
error correction models
EU fiscal surveillance
real-time data
revenue elasticities
tax forecasts
JEL: 
E62
H68
Document Type: 
Working Paper

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