Unstable government revenues in uncertain times: which taxes are especially volatile?

Abstract

Motivation: External shocks affect the performance of economies. This is especially true recently after COVID-19 pandemics and ongoing war in Ukraine. States struggle to maintain their revenues in order to avoid skyrocketing public debts. Yet, especially now, governments face challenges connected with high uncertainty of inflows from the taxes.
Aim: The aim of the article is improvement in understanding of the variability of government revenues sourced from selected taxes binding in the EU Member states as well as the potential reasons for their fluctuations.
Results: The calculations are made based on empirical data for EU Members states for the period 1996–2021. There are ten taxes that were considered — both those of key importance for budgets in most jurisdictions as well as some sectoral or specific more niche levies. Study is executed with usage of statistical tools that include calculation of coefficient of variation, modified trend curve estimation with use of Hodrick–Prescott filter, correlation of such trend with empirical data, comparison of coefficient of variation for empirical data with numbers produces by Hodrick–Prescott filter and two-way ANOVA without replications, while controlling for the states. Corporate income taxes, Excise duty as well as most specific and sectoral taxes that include Taxes on capital transfers, Car registration taxes, Taxes on insurance premiums or Tax on lotteries, gambling and betting are generally characterized by greater variability in terms of revenues they provide than Payroll taxes, Real estate taxes or Value added taxes. Due to insufficient research in previous studies in this respect, findings presented in this article may provide for a useful hint for policymakers in further design of optimal tax system that would provide for stable and predictable sources of income to the government.