Cross-Country Evidence on the Revenue Impact of Tax Reforms
Cross-CountryEvidenceontheRevenueImpactofTaxReforms DavidAmaglobeli,ValerioCrispolti,andXuguangSimonSheng WP/22/199 IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate. TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement. 2022 SEP ©2022InternationalMonetaryFundWP/22/199 IMFWorkingPaper FiscalAffairsDepartment Cross-CountryEvidenceontheRevenueImpactofTaxReformsPreparedbyDavidAmaglobeli,ValerioCrispolti,andXuguangSimonSheng1 AuthorizedfordistributionbyJamesDanielSeptember2022 IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate.TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement. ABSTRACT:Manycountriesfacethechallengeofraisingadditionaltaxrevenueswithouthurtingeconomicgrowth.Comprehensive,cross-countryinformationontherevenueimpactoftaxpolicychangescanthussupportinformeddecision-makingonviablereforms.Weassessthelikelyrevenueimpactofvarioustaxpolicychangesbasedonasampleof21advancedandemergingmarketeconomies,usinggranularinformationfromtheIMFTaxPolicyReformDatabasev.4.0.Ourfindingssuggestthattherevenueyieldofataxpolicychangevariessignificantlydependingonthetaxinstrumentadopted(e.g.,VATorpersonalincometax)andthenatureofthechange(i.e.,rate,base).Forexample,inoursample,base-broadeningchangestopersonalandcorporateincometaxesaswellastoexciseandpropertytaxeshavegenerallyamoresignificantandlong-lastingrevenueyieldsthanratechanges.Bycontrast,ratechangesappeartohavearelativelymoresignificantrevenueimpactinthecaseofVATandsocialsecuritycontributions.Wealsoobserveanasymmetryintherevenueimpactofmosttaxpolicymeasureswhencontrollingforthedirectionoftaxchanges(i.e.,itssignificancevariesdependingonwhethertaxesareincreasedordecreased).Whileourresultsarebasedonqualitativeinformationoftaxpolicychanges(i.e.,dummyvariables),therevenueyieldsofratemeasuresarenotmateriallydifferentfromthosethatwouldbeobtainedusingquantitativeinformationonthesizeofthechange. JELClassificationNumbers: E62,H24,H25 Keywords: corporateincometax,personalincometax,valueaddedtaxes,socialsecuritycontributions,excise,propertytaxes,taxreforms,revenueyield Author’sE-MailAddress: damaglobeli@imf.org,vcrispolti@imf.org,sheng@american.edu 1DavidAmaglobeli,ValerioCrispolti:IMF;XuguangSimonSheng:AmericanUniversity. WORKINGPAPERS Cross-CountryEvidenceontheRevenueImpactofTaxReforms PreparedbyDavidAmaglobeli,ValerioCrispolti,andXuguangSimonSheng2 2WethankLongjiLiandJieminRenfortheexcellentresearchassistanceandPapaNiang(IMF)fortheoutstandingworktodevelopauser-friendly,web-basedplatformtoconsultanddownloadtheTPRD(www.tprdportal.org).WethankDanielShaviro(discussant)andparticipantsatthe113thNationalTaxAssociationAnnualMeeting,themembersofIMFadvisorycommitteeontheTaxPolicyReformDatabase(VictoriaPerry,IvannaVladkovaHollar,EraDabla-Norris,AlpaShah,TomFerris,SantiagoAcostaOrmaechea,TristanWalker,andKirpalChauhan)formanyhelpfulcommentsandsuggestions.WearealsogratefultoKatherineBaer,RuudDeMooij,VitorGaspar,SanjeevGupta,PaoloMauro,HamidDavoodi,HassanAdan,ManabuNose,DoraBenedek,Jean-FrancoisWen,CarloPizzinelli,MahmoudHarb,andalltheparticipantstotheFiscalAffairsDepartmentandIMF-Sparkseminarsfortheirusefulcommentsandsuggestions.SimonShengthankstheIMFInnovationLabUnitforfinancialsupport.TheauthorsalsowouldliketothankVonAllenaforexcellentproductionassistance. IMFWORKINGPAPERSCross-CountryEvidenceontheRevenueImpactofTaxReforms Contents Introduction3 TheTaxPolicyReformDatabase5 TheDatabaseinaNutshell5 ConstructingaTaxChangeIndicator6 MacroVariables8 EconometricMethod9 ImpactonTaxRevenues9 BaselineResults9 AccountingforBothMajorandMinorTaxPolicyChanges11 UsingtheImplementationYeartoDateTaxPolicyChanges13 AccountingforDirectionofPolicyChanges14 ExtensiveandIntensiveMarginsofTaxRateChanges15 Conclusions18 References19 AppendixA20 AppendixB23 FIGURES 1.IllustrationforCodingMajorTaxPolicyChanges6 2.DistributionsoftheCodedMajorTaxPolicyReforms8 3.BaselineResults-ResponseofTax-to-GDPRatioto1-StepIncrease(Broadening)inTaxRate(Base)11 4.ResponseofTax-to-GDPRatioto1-StepIncrease(Broadening)inTaxRate(Base):MajorandMinorTaxChanges12 5.ResponseofTax-to-GDPRatioto1-StepIncrease(Broadening)inTaxRate(Base):UsingImplementationYear13 6.ResponseofTax-to-GDPRatioto1-StepTaxChangeofDifferentDirections15 7.ResponseofTax-to-GDPRatiotoaOne-Standard-DeviationTaxRateIncreaseinExtensive(EM)orIntensiveMargin(IM)17 TABLES 1.DistributionofTaxPolicyChangesintheTPRDv.4.05 2.HeatmapofTaxPolicyChangesRepresentedbyourTaxChangeIndicator7 3.MeanandStandardDeviationforCodedTaxPolicyChanges16 INTERNATIONALMONETARYFUND2 Introduction ThispaperinvestigatesthepotentialrevenueimpactofdifferenttaxpolicychangesusingtheTaxPolicyReformDatabase(TPRD),anovelmeasure-baseddatabase(Amaglobeliandothers,2018)3.Revenueresponsestotaxpolicychangesdependonmanyfactors,su
