Working Paper: NBER ID: w16289
Authors: Karel Mertens; Morten Ravn
Abstract: We provide empirical evidence on the dynamics effects of tax liability changes in the United States. We distinguish between surprise and anticipated tax changes using a timing-convention. We document that pre-announced but not yet implemented tax cuts give rise to contractions in output, investment and hours worked while real wages increase. In contrast, there are no significant anticipation effects on aggregate consumption. Implemented tax cuts, regardless of their timing, have expansionary and persistent effects on output, consumption, investment, hours worked and real wages. Results are shown to be very robust. We argue that tax shocks are empirically important impulses to the U.S. business cycle and that anticipation effects have been important during several business cycle episodes.
Keywords: Tax Policy; Business Cycle; Fiscal Policy
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 |
|---|---|
| anticipated tax cuts (H29) | contractions in output (Y60) |
| anticipated tax cuts (H29) | contractions in investment (E22) |
| anticipated tax cuts (H29) | contractions in hours worked (J22) |
| anticipated tax cuts (H29) | increase in real wages (J39) |
| anticipated tax cuts (H29) | rise in output post-implementation (O49) |
| anticipated tax cuts (H29) | increase in investment post-implementation (E22) |
| unanticipated tax cuts (H29) | increase in output per capita (O49) |
| tax shocks (H26) | volatility of output (E23) |
| anticipated tax cuts (H29) | increase in hours worked post-implementation (J38) |