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This paper analyzes the size and the determinants of unexpected changes in EU countries' tax revenues and their impact on the ability of EU governments to use fiscal policy as a macroeconomic stabilization device. The authors make use of information taken from the Stability and Convergence Programmes (SCP) setting countries' medium-term fiscal plans and focus on the period preceding the 2008/2009 global financial crisis. Tax revenue surprises are found to have fluctuated widely, alternating periods of sizeable windfalls and periods of substantial shortfalls. When analyzing the determinants of these unexpected changes in tax revenues, they find that GDP growth surprises and, in some cases (i.e. Ireland, Spain the UK and Finland) asset prices fluctuations have exerted the most significant influence.
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