A Study of the Commonwealth of Dominica, St. Lucia and Antigua and Barbuda
From the document:
The paper examines and analyses the concept of tax buoyancy in the Eastern Caribbean Currency Union (ECCU) and examines the implications for fiscal consolidation specifically in Dominica, Antigua and Barbuda, and St. Lucia from 1980 to 2010.
The data was found to be non-stationary and the Dynamic Ordinary Least Squares method is applied to obtain the buoyancy coefficients. The Divisia Index (DI) is also applied to estimate the elasticity coefficients within the countries in order to complete the analysis.
The results indicate that the countries being studied possess buoyant tax revenue structures. The results also show a heavy reliance on discretionary policy in order for effective tax revenue generation. The Paper concludes that in order for fiscal consolidation to be successful, on the revenue side, the tax base should be buoyant as well as sufficiently large.
“The current realities at the domestic level are conditioned by the structural features of Caribbean economies, that is, they are small, open and vulnerable.”(ECCB, 2013) Sir K Dwight Venner appropriately describes the reality of the countries within the Eastern Caribbean Currency Union (ECCU) and the entire Caribbean Community by extension. Additionally, it gives insight and some intuition regarding the constraints faced as well as the scope for exploiting the opportunities placed before them. From this insight, it is therefore important to strategically implement mechanisms that directly and effectively address the specific circumstances faced.
Schipke (2013) indicates that in the period immediately following independence of the countries that formed the ECCU, there was slow but positive growth within these economies. However, as time progressed growth began moving at an even more sluggish pace. Schipke attributed this partly to changes in World Trade Organization (WTO) rules of engagement that consequently saw the removal of preferential trading agreements, along with terms of trade shocks and reductions in foreign aid disbursements and Official Development Assistance (ODA).
The openness and vulnerability of the ECCU economies means that the currency union provides the ideal conditions to be affected by negative shocks. These shocks, which are mainly a function of the external environment, have throughout history never been kind to any small island grouping.