Working Paper: CEPR ID: DP8554
Authors: Karel Mertens; Morten O. Ravn
Abstract: This paper estimates the dynamic effects of changes in taxes in the United States. We distinguish between the effects of changes in personal and corporate income taxes using a new narrative account of federal tax liability changes in these two tax components. We develop an estimator in which narratively identified tax changes are used as proxies for structural tax shocks and apply it to quarterly post WWII US data. We find that short run output effects of tax shocks are large and that it is important to distinguish between different types of taxes when considering their impact on the labor market and the major expenditure components.
Keywords: Fiscal Policy; Measurement Error; Narrative Identification; Tax Changes
JEL Codes: E20; E32; E62; H30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| average personal income tax rate (APITR) (H26) | real GDP per capita (O49) |
| average corporate income tax rate (ACITR) (H25) | real GDP per capita (O49) |
| average personal income tax rate (APITR) (H26) | employment (J68) |
| average personal income tax rate (APITR) (H26) | consumption (E21) |
| average personal income tax rate (APITR) (H26) | investment (G31) |
| average corporate income tax rate (ACITR) (H25) | investment (G31) |
| average personal income tax rate (APITR) (H26) | tax revenues (H29) |
| average corporate income tax rate (ACITR) (H25) | tax revenues (H29) |
| average personal income tax rate (APITR) (H26) | personal income tax multiplier (H29) |
| average corporate income tax rate (ACITR) (H25) | corporate income tax multiplier (H32) |