Cyclicality of taxes and external debt

Noa Srebrnik, Michel Strawczynski*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

6 Scopus citations

Abstract

In their work, Vegh and Vuletin have shown that statutory tax rates are acyclical in developed economies and procyclical in developing ones. This article extends their analysis by checking the interaction of statutory tax rates with countries’ external public debt. In general, we found that the value added tax rates are changed procyclically in both developed and developing countries (i.e. taxes are raised in bad times and reduced in good times). However, when the external debt is high, in the developing countries the procyclicality increases, while the opposite result holds for developed economies. This pattern occurs mainly in times of recession, when the need for loans is the highest. Although we found that there was a reduction in procyclicality after the 2000s, these findings pose a challenge to policy-makers, who should think of ways of dealing with lack of foreign funds in difficult times.

Original languageAmerican English
Pages (from-to)4622-4634
Number of pages13
JournalApplied Economics
Volume48
Issue number48
DOIs
StatePublished - 13 Oct 2016

Bibliographical note

Publisher Copyright:
© 2016 Informa UK Limited, trading as Taylor & Francis Group.

Keywords

  • Taxes
  • cyclicality
  • external debt

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