The Instability Of Tax Revenue And The Missing Risk Premium

Abstract

This paper attempts to estimate the implicit risk premium from fluctuating tax revenue. We provide a number of reasons for the absence of the risk premium from the public borrowing rate. One reason can be viewed as the value society places on the ability of the tax system to act as an automatic built-in stabilizer. Empirically the annual value of this implicit risk premium for the US is the estimated at 2.45 percent.