Constructing exogenous output elasticity of tax revenue for the Albanian fiscal sector

This article presents an estimation of the exogenous elasticity of fiscal revenues in Albania with respect to economic output, a critical parameter of macroeconometric models used for effective macroeconomic policy decision-making. By utilizing the OECD disaggregated approach with the latest available data from 1998 to 2018, which consists in calculating the output elasticities for the main tax components such as Value Added Tax, direct taxes, Excise Taxes, Customs duties, and Social security taxes, the calculated overall output elasticity of tax revenue is found to be 1.3, signifying that on average a 1% increase in economic output generates a 1.3% increase in tax revenue, ceteris paribus. The respective regressions are carried out using heteroskedasticity and autocorrelation corrected standard errors, which account for the potential presence of heteroskedasticity and autocorrelation in the data.