Abstract:
We estimate the effect of legislated tax changes on revenues in Israel from 1991 to 2012. We exploit numerical revenue forecasts, prepared alongside the proposed tax changes, to control for the information policy makers had. Estimating an error-correction model, we find that the average tax change ultimately yields about 70 percent of its static revenue effect. The dynamic offset is consistent with a large tax multiplier. The steady state estimated collection rate is 90 percent for a change in the corporate income tax, 65 percent for the personal income tax, and 58 percent for indirect taxes.