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- © University of Latvia, 2002-2013
Article
Tax Elasticities – Factors Causing Fluctuations in the Short and Long Run, the Case of Lithuania
Audrone Jakaitiene, Violeta Klyviene
ABSTRACT. This paper provides estimates of the budget revenue elasticity of Lithuanian taxes, paying particular attention to differences between long- and short-run elasticities. Two alternative methods were applied, quantifying revenue elasticities against macroeconomic tax bases and against GDP. We find a positive and significant relationship between these variables; results are consistent for quarterly 1997-2011 data. We conclude that estimating the elasticities against macroeconomic tax bases is more appropriate than against GDP, especially in the short-run analysis. Overall, the results of the study emphasise the importance of accounting for cyclical variation in tax elasticities when making short-term tax revenue projections.
KEYWORDS: cyclical fluctuation, fiscal policy, tax base, elasticity, Lithuania.
JEL classification: E62, H71, C22, C51, P2.