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The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks

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  • Christina D. Romer
  • David H. Romer

Abstract

This paper investigates the impact of tax changes on economic activity. We use the narrative record, such as presidential speeches and Congressional reports, to identify the size, timing, and principal motivation for all major postwar tax policy actions. This analysis allows us to separate legislated changes into those taken for reasons related to prospective economic conditions and those taken for more exogenous reasons. The behavior of output following these more exogenous changes indicates that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes. (JEL E32, E62, H20, N12)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 100 (2010)
Issue (Month): 3 (June)
Pages: 763-801

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Handle: RePEc:aea:aecrev:v:100:y:2010:i:3:p:763-801

Note: DOI: 10.1257/aer.100.3.763
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  1. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Riduzione del debito pubblico: meglio aumentare le tasse o ridurre la spesa?
    by gzanella in Noise from Amerika on 2012-09-04 05:26:17
  2. Given the enormity of the short- and long-run fiscal challenges facing the US, the lack of policy detail from both presidential candidates is disappointing
    by Blog Admin in British Politics and Policy at LSE on 2012-10-25 13:00:36
  3. Christina Romer Studies the Impact of Tax Hikes on Growth
    by HistorySquared in HistorySquared on 2012-04-25 13:04:48
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