||Central Bank Of Barbados
Buoyancy and elasticity are important metrics to estimate the efficiency of a tax system, reflecting its capacity to collect tax revenue with minimal losses. The objective of this paper is to estimate the sizes of the buoyancy and elasticity of the tax system in Barbados in the period 1990 to 2019. The paper finds that total tax revenue is buoyant in the long-run and non-buoyant in the short run as well as elastic in the long run and inelastic in the short-run. Direct taxes are buoyant in the long-run and non-buoyant in the short-run while predominantly elastic in the long-run and inelastic in the short-run. Indirect Taxes are buoyant in the long-run and the short-run while elastic in the long-run and elastically inconclusive in the short-run. The low short-run estimations of direct taxes raise concerns about potential loopholes for tax evasion and obstructions to voluntary compliance by taxpayers. Failure to mitigate this may impair the government’s ability to fully maximise its tax collection from direct taxes. Hence, it should prioritise assessing the current direct tax regime and determine whether information about tax registration is adequately circulated among the public.
Estimating the Sizes of Buoyancy and Elasticity of the Tax System in B'dos_WP2.pdf