RESEARCH PAPER NO. 814
THE REVENUE RESPONSIVENESS OF INCOME AND CONSUMPTION TAXES IN THE UK
by
JOHN CREEDY & NORMAN GEMMELL
SEPTEMBER 2001
Department of Economics. University of Melbourne. Melbourne Victoria 3010 Australia
ABSTRACT
This paper provides new estimates of the revenue elasticity of income taxes in the UK over the period 1989-2000. Observed changes in these elasticities are decomposed into changes due to inflation, real income growth, changes in fiscal structure, and changes in the dispersion of incomes in the UK. Using new analytical expressions, estimates of combined tax revenue elasticities for VAT and the main UK excises are obtained. These elasticities are estimated from information on relatively few parameters, almost all of which are readily available from published sources. Changes in consumption patterns over time are found to be important for the magnitude of consumption tax elasticities.
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