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The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States

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  • Karel Mertens
  • Morten O. Ravn

Abstract

This paper estimates the dynamic effects of changes in taxes in the United States. We distinguish between changes in personal and corporate income taxes and develop a new narrative account of federal tax liability changes in these two tax components. We develop an estimator which uses narratively identified tax changes as proxies for structural tax shocks and apply it to quarterly post-WWII 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 on expenditure components.

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Bibliographic Info

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

Volume (Year): 103 (2013)
Issue (Month): 4 (June)
Pages: 1212-47

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Handle: RePEc:aea:aecrev:v:103:y:2013:i:4:p:1212-47

Note: DOI: 10.1257/aer.103.4.1212
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References

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  1. Glenn D. Rudebusch, 1996. "Do measures of monetary policy in a VAR make sense?," Working Papers in Applied Economic Theory 96-05, Federal Reserve Bank of San Francisco.
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  3. Perotti, Roberto, 2011. "The Effects of Tax Shocks on Output: Not So Large, But Not Small Either," CEPR Discussion Papers 8252, C.E.P.R. Discussion Papers.
  4. Karel Mertens & Morten O. Ravn, 2012. "Empirical Evidence on the Aggregate Effects of Anticipated and Unanticipated US Tax Policy Shocks," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 145-81, May.
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Citations

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Cited by:
  1. Emily Anderson & Atsushi Inoue & Barbara Rossi, 2012. "Heterogeneous Consumers and Fiscal Policy Shocks," 2012 Meeting Papers 261, Society for Economic Dynamics.
  2. Kliem, Martin & Kriwoluzky, Alexander, 2013. "Reconciling narrative monetary policy disturbances with structural VAR model shocks?," Economics Letters, Elsevier, vol. 121(2), pages 247-251.
  3. Cloyne, James & Surico, Paolo, 2014. "Household debt and the dynamic effects of income tax changes," Bank of England working papers 491, Bank of England.
  4. de Groot, Oliver & Holm-Hadulla, Fédéric & Leiner-Killinger, Nadine, 2012. "Cost of borrowing shocks and fiscal adjustment," Working Paper Series 1503, European Central Bank.
  5. Samuel Wills, 2014. "Optimal Monetary Responses to Oil Discoveries," OxCarre Working Papers 121, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  6. James H. Stock & Mark W. Watson, 2012. "Disentangling the Channels of the 2007-2009 Recession," NBER Working Papers 18094, National Bureau of Economic Research, Inc.

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