Tax Pot Episodes in OECD Countries

Abstract

How to use an unexpected increase in tax revenues (tax pots) was an important issue in most OECD countries in the second half of the 1990s, the question being more precisely what to do with those windfall revenues: decrease taxes, reduce debt, increase expenditures? In this paper, we study such tax pot episodes in OECD countries over the past 40 years. To that end, we propose a definition of a fiscal pot episode. Once identification is complete, we examine the macroeconomic environment within in those episodes, the way this surplus of revenues has been used, and the degree of success in reducing public debt and in fostering growth. As in the fiscal adjustment literature, we then obtain relatively orthodox conclusions about the use of windfall tax revenues, as it is generally better for future growth and debt level to use the money to reduce expenditures and taxes. J. Japan. Int. Econ., December 2002, 16(4), pp. 436–461. University of Toulouse (IDEI), Toulouse, France; and University of Toulouse (GREMAQ, LEERNA, and IDEI), Toulouse, France, Institut Universitaire de France, and CEPR. © 2002 Elsevier Science (USA). Journal of Economic Literature Classification Numbers: E6, H6.