The random coefficient approach for estimating tax revenue stability and growth

    Authors

    Y. Otsuka;B. M. Braun

    Comments

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    Abbreviated Journal Title

    Public Financ. Rev.

    Keywords

    STATE; Business, Finance

    Abstract

    The issue of tan revenue stability and growth has been of concern to policy makers and economists for many years. One important focus of the literature is the optimal tax portfolio, which assumes that revenue variance is entirely unpredictable. However as evidenced by Fox and Campbell, some revenue variance arising from changes in economic conditions is predictable. The purpose of this study is to revisit Fox and Campbell's work. They studied revenue growth and stability with a efficient model (FCM). This study uses a random coefficient model (RCM). The RCM approach appears to provide improved estimates and confirms the conclusions of their earlier work. The response of short-run elasticities to the business cycle appears both strong and variable across commodities, and no single commodity dominates revenue growth or stability. Although this study supports the design of an optimal tax portfolio, it emphasizes the need to explicitly model for economic: conditions and to continually adjust the tax portfolio. However given the political and budgetary process, these adjustments may not be feasible.

    Journal Title

    Public Finance Review

    Volume

    27

    Issue/Number

    6

    Publication Date

    1-1-1999

    Document Type

    Article

    Language

    English

    First Page

    665

    Last Page

    676

    WOS Identifier

    WOS:000083478100006

    ISSN

    0048-5853

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