Modelling Elasticity of Non‑Oil Tax Revenues to Oil Price Changes: is There U‑Shaped Association? Evidence from Azerbaijan

• Main Authors: Khatai Aliyev, Altay Ismayilov, Ilkin Gasimov
• Format: Article
• Language: English
• Published: Mendel University Press 2019-01-01
• Series: Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis
• Subjects: oil price changes; firm behaviour; non oil sector; tax revenues; threshold level; produce and sell
• Online Access: https://acta.mendelu.cz/67/3/0799/
• ISSN: 1211-8516; 2464-8310

Oil price changes has a great influence on the behaviour of firms in oil exporting countries which displays itself in amount of non‑oil tax receipts of the state budget. Employing FMOLS, DOLS, and CCR cointegration methods for 2001Q1–2015Q4, the study aims to analyse how oil price changes affects non‑oil tax revenues in Azerbaijan. Empirical results altogether provide strong scientific evidence that there is U‑shaped causality from oil price changes to total non‑oil tax revenues , corporate income tax receipts and labour income tax payments , and inverse U‑shaped to non‑oil VAT revenues of the state budget. Results show that firms face with the trade‑off between “produce‑and‑sell” and “import‑and‑sell” as oil price rises. In case of higher price than the threshold level, companies prefer the latter choice. Research findings are highly useful for the public policy decision‑makers in resource rich economies.