Estimating excise tax revenue elasticity and buoyancy for tobacco products and alcoholic beverages: evidence from Greece

The aim of this paper is to estimate excise tax revenue elasticity and buoyancy for tobacco products and alcoholic beverages in Greece, for the period 2000-2020. To this end, we employ core and more extended error correction models. Overall, our empirical results do not confirm the appropriateness of the unity assumption. Policy measures seem to affect excise tax revenues in the long run mostly through the tax-to-base relation. In most cases, excise tax revenues seem to have a larger reaction to changes in the tax base in the short run, which could be associated with different asymmetric effects, in particular the crisis/adjustment and the COVID-19 lockdown effects. Our findings indicate several differences in excise tax revenue elasticity and buoyancy between the two product categories, suggesting that individual product categories should be examined separately for a more precise estimate of tax revenue sensitivity. This implication may assist policy makers to effectively design the related tax policies, especially during abnormal periods like the COVID-19 pandemic, and derive more accurate tax revenue forecasts.

Automated summary

This paper aims to estimate the excise tax revenue elasticity and buoyancy for tobacco products and alcoholic beverages in Greece. The results suggest that policy measures primarily affect tax revenues in the long term through the tax-to-base relation. In the short term, excise tax revenues have a larger reaction to changes in the tax base, possibly due to asymmetric effects such as the crisis/adjustment and the COVID-19 lockdown effects. There are several differences in excise tax revenue elasticity and buoyancy between the two product categories.