Short- and Long-Run Fiscal Elasticities: International Evidence

Using dynamic heterogeneous panel data models, this paper estimates short- and long-run fiscal elasticities with respect to various cyclical factors for more than 90 countries. We find the terms of trade are significant in explaining primary fiscal revenues. Moreover, revenue elasticities with respect to real GDP on average are larger than one in the short-run and bigger in developing countries than in advanced economies both, in the short- and long-run. The analysis highlights the importance of considering short- and long-run elasticities with respect to other effects than the output gap, particularly terms of trade, when computing structural balances.