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Author(s): Polyvios S. Eliofotou (European Commission)
Cyprus: the composition of government revenues, 2002-2008 - Polyvios S. Eliofotou (132 kB)
This Country Focus assesses the extent to which the recent tax-revenue
increases in Cyprus is of a permanent nature or whether is of temporary nature,
linked to short lived asset boom.
Between 2002 and 2008 the Cypriot economy grew at an annual average rate of
about 3½% in real terms, significantly above the euro area. In parallel,
total tax receipts increased on average at 11% per year, leading to an average
annual elasticity with respect to GDP of about 1½. This increase in tax
revenues has contributed significantly to the improvement of the Cypriot budget
balance. This Country Focus shows that a large part of the increases in tax
revenues is structural, being the result of tax harmonisation measures adopted
in the run-up to EU accession. However, the developments which led to the
remarkable revenue performance in 2007 are likely to be of a more temporary
nature, linked to short lived asset boom. This calls for maintaining fiscal
prudence, especially in the light of the high external imbalance.
JEL classification: E62, E65, H20, H24,H25, H27
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