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How Sensitive is Irish Income Tax Revenue to Underlying Economic Activity?
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In this paper we examine the elasticity of Irish income taxation revenue with respect to aggregate national output – both GDP and GNP. This enables us to estimate the sensitivity of this key taxation aggregate with respect to changes in economic activity. It also allows us to compare the elasticity of income taxation across other jurisdictions where similar estimates are available. Understanding the elasticity of the different taxation components vis-à-vis their underlying economic activity should enable policy-makers to place the public finances on a more sustainable footing and hence avoid the sharp booms and busts which has characterized Irish taxation receipts over the past 20 years.
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