The elasticity is low in Germany, the UK and
Australia, for two reasons: the quarterly output elasticity of direct taxes on individuals is zero, because the estimated output elasticity of real wages to employment is zero and the
elasticity of employment to output is small or zero; and corporate income taxes have zero
contemporaneous elasticity to their tax base, because quarterly installments are paid on
the previous year’s assessed tax liability. It is well known that in quarterly data corporate
profits are highly elastic to output: this accounts for the high output elasticities of net
taxes in Canada and USA (in both, the estimated contemporaneous output elasticity of
profits is above 4), the only two countries where corporate income taxes have a positive
contemporaneous elasticity to corporate profits. Note also that the output elasticities of
net taxes tend to rise slightly in S2 in all countries except Germany.