Buoyant or Sinking? Tax Revenue Performance and Prospects in Developing Asia

How did developing Asian economies perform with respect to tax revenue mobilization before and during the coronavirus disease (COVID-19) pandemic? An analysis of data from developing Asia suggests that both short-run and long-run tax buoyancies, a measure of how tax revenue responds to gross domestic product (GDP), were close to one before COVID-19, which is indicative of fiscal sustainability. COVID-19 had a negative impact on the region’s GDP and thus its tax base, and spurred significant fiscal stimulus including tax measures. At a regional level, the pandemic subtracted a tenth of a percentage point from tax revenue growth after controlling for changes in GDP. Using estimated economy-level tax buoyancy coefficients, a counterfactual analysis is undertaken to estimate excess tax revenue losses in 2020 because of COVID-19. The average GDP-weighted excess tax revenue loss is about half a percentage point of pre-pandemic GDP