Tax capacity and growth in the Asia-Pacific region

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Abstract

In this paper, we estimate short- and long-term tax buoyancy for 30 Asian-Pacific countries during 1980–2017 using recent panel techniques. Using Mean Group estimators, we found that the short-run buoyancy is statistically not different from one, while the long-run buoyancy is statistically larger than one. In 11 out of 30 countries, growth has improved fiscal sustainability over time, while in only 4 out of 30 countries the tax system has acted as a good automatic stabilizer. Results are robust to the estimation with alternative estimators, the inclusion of inflation and tax rates. We uncovered that buoyancies increased in magnitude and significance over time. Lastly, resorting to nonlinear estimations of short-run buoyancies contingent on the phase of the business cycle, we find that buoyancy is generally larger during recessions.

Original languageEnglish
Pages (from-to)527-551
JournalJournal of the Asia Pacific Economy
Volume26
Issue number3
DOIs
Publication statusPublished - 3 Jul 2021

Keywords

  • business cycle
  • error correction model
  • filtering
  • nonlinear models
  • pooled mean group
  • Tax elasticity

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