Elasticity of compulsory levies to GDP: definition, interpretation and limits

The elasticity of compulsory levies (CLs) is a synthetic indicator that measures the deviation between their spontaneous growth, i.e. at constant legislation, and that of activity. This reference is very useful for summarising the forecast of compulsory levies at an aggregate level, but does not, on its own, make it possible to judge the exceptionnal nature of a change in the CLs. This question is particularly important when CLs are expected to have an elasticity to GDP in 2022 that is well above 1, its average value over the past 30 years.

The note shows that observing the growth rate of private sector wages leads to a significant improvement in the explanation of the spontaneous CLs evolution, thus leading to a modification for certain years of the diagnosis based solely on GDP growth. Beyond this, even if the relationship thus obtained between spontaneous CLs growth and GDP and wage growth has good statistical properties, it cannot by itself capture the great diversity of tax bases and consider the evolution of legislation over time.

Consequently, a high or low elasticity of compulsory levies with respect to GDP growth is not necessarily a sign of an abnormal evolution of compulsory levies, and, conversely, an elasticity of compulsory levies with respect to growth GDP close to 1 does not necessarily mean that the forecast is correct.

It is therefore necessary to analyse the evolution of the main CLs according to their own tax base and the legislation in force, in view of the macroeconomic scenario.

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