Tax Buoyancy in the Caribbean: Evidence from Heterogenous Panel Cointegration Models

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Jan 2020
This paper provides long- and short -run tax buoyancy estimates for a group of 12 Caribbean countries over the period 1991-2017. By using panel regressions, this paper finds that the long- and short-run tax buoyancy estimates are statistically significant and exceeds one. However, the results vary by tax categories: with respect to indirect taxes—which accounts for almost 65 percent of total tax revenues—the buoyancy of the long-run coefficient is significantly less than one (0.35), while for direct taxes it is significantly higher than one (1.33). For taxes on goods on services, the single most important tax for most countries, the long-run buoyancy coefficient is lower than one. It was also found that long-run tax buoyancy was lower in the post-global financial crisis period. With respect to short-run buoyancies, corporate taxes and trade taxes are found to be the most buoyant for Caribbean countries.