Working Paper: CEPR ID: DP3483
Authors: Catherine Bruno; Franck Portier
Abstract: How to use an unexpected increase in tax revenues (tax pots) has been an important issue in most OECD countries in the second half of the 90?s, the question being more precisely what to do with those windfall revenues: decreasing taxes, debt, increasing expenditures? In this paper, we study such tax pot episodes in OECD countries over the last 40 years. To that end, we propose a definition of a fiscal pot episode. Once identification done, we examine the macroeconomic environment in those episodes, the way this surplus of revenues has been utilized and the degree of success in reducing public debt and in fostering growth. As in the fiscal adjustment literature, we then obtain relatively orthodox conclusions about the use of windfall tax revenues, as it is generally better for future growth and debt level to use the money to reduce expenditures and taxes.
Keywords: public debt; public finance; tax revenues
JEL Codes: E60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tax pot episodes (H26) | public debt reduction (H63) |
| tax pot episodes (H26) | growth enhancement (O40) |
| using windfall tax revenues to reduce public debt (H69) | future growth (O49) |
| reducing expenditures during tax pot episodes (H29) | public debt reduction (H63) |
| using tax revenues judiciously (H20) | growth enhancement (O40) |
| high indebted countries (F34) | more likely to choose debt reduction (H63) |
| high tax countries (H29) | tend to reduce taxes less aggressively (H29) |