Publication: PFR Fundamentals: Tax Buoyancy
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2025-04-29
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2025-04-29
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Medium-term fiscal sustainability relies on accurate projections of revenue mobilization. Assessing whether a government aligns tax mobilization with economic activity is important for prudent spending choices. Revenue projections depend on assumptions about how revenues will respond to changes in economic growth in the future, and the two concepts of tax elasticity and tax buoyancy are most used to assess this. While closely related, these two concepts are different and produce different outcomes. The objective of this note is to recommend a methodological approach for country economists to estimate buoyancy when analyzing a country’s tax systems, for example, when writing a Public Finance Review (PFR). The note presents theoretical underpinnings and describes alternative econometric approaches and data for estimating short-run and long-run tax buoyancy. Results and practical implementation of the proposed methodology are displayed.
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“World Bank. 2025. PFR Fundamentals: Tax Buoyancy. © World Bank. http://hdl.handle.net/10986/43133 License: CC BY-NC 3.0 IGO.”
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