This research publication analyses dynamics of tax revenues as well as assesses tax burden and tax response with respect to GDP.
Tax burden is estimated as a ratio of taxes to GDP. During 1996-2003 the size of tax burden was 8.4%-12%, while during 2004-2009 it reached at 25%. After 2009, the size of tax burden is stabilized by the adoption of “Organic Law of Georgia on Economic Freedom”.
In order to estimate response of taxes to policy changes, one should check the time series on stationarity. The results show that personal income tax, value added tax, and excises are nonstationary variables at the level. In contrast, profit tax, property tax and import duties are stationary variables.
Coefficient of variation that determines how stable taxes are, in case of Georgia, shows that it was quite high before 2007. The high coefficients may be caused by various tax system reforms until 2008. However, after 2008, almost all taxes, exception the import duties, has stabilized eventually.
Analysing behaviour of the tax revenue conjointly, the debt sustainability and cost effectiveness analysis in the paper, there is additionally studied tax buoyancy and tax elasticity for Georgia.
Tax revenues buoyancy is more than one as in the short-run, as in long-run periods. Therefore, Georgian taxation system is a good automatic stabilizer (short-run buoyancy 1.18), and in ceteris paribus, it promotes fiscal sustainability in the long-run (long-run buoyancy 1.41).
Almost for all taxes, elasticity coefficient is equal or exceeds to the buoyancy. Only in case of PIT, short-run elasticity is less than short-run buoyancy but long–rung elasticity is still higher.
Overall, the analysis concludes that structural changes or reforms does not influence on the taxes in the short-run. Exception is VAT, when one time shocks’ effect on the short-term sensitivity of VAT is significantly high.