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Tax Burden and GDP: Evidence from Frequency Doman Approach for the USA

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  • Aviral Kumar Tiwari

    ()
    (ICFAI University Tripura)

Abstract

We employed Breitung and Candelon's (2006) frequency domain approach to investigate the short-and long-run Granger-causality from different tax burden to GDP in the USA for the period 1947:1 –2009:3. The frequency domain analysis shows that current receipts, personal current tax, taxes on production and imports and taxes on corporate income do not Granger-cause GDP, both at the short and high frequency level; however, current tax receipts Granger-cause GDP in the frequency range of (0.9,1.9), corresponding to the cycle of to 3 months to 7 months. These results suggest that when the USA looks forward to rebalancing her GDP, by means of taxation, it is preferable to reconsider the tax structure with a focus on current tax receipts. This is so because by changing the structure of current tax receipts, the USA will be able to earn more revenue, even in the initial stage. However, if the USA decides to increase welfare, with the stability and sustainability of GDP, the policy makers are advised to readjust the tax burden by infusing the changes of the current receipts, personal current tax, taxes on production and imports and taxes on corporate income.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 32 (2012)
Issue (Month): 1 ()
Pages: 147-159

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Handle: RePEc:ebl:ecbull:eb-11-00794

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Keywords: Granger causality in frequency domain; GDP; Tax burden;

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References

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  1. Stefan Gerlach & Katrin Assenmacher-Wesche, 2006. "Interpreting Euro area inflation at high and low frequencies," BIS Working Papers 195, Bank for International Settlements.
  2. Assenmacher-Wesche, Katrin & Gerlach, Stefan, 2006. "Money Growth, Output Gaps and Inflation at Low and High Frequency: Spectral Estimates for Switzerland," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5723, C.E.P.R. Discussion Papers.
  3. Breitung, Jorg & Candelon, Bertrand, 2006. "Testing for short- and long-run causality: A frequency-domain approach," Journal of Econometrics, Elsevier, Elsevier, vol. 132(2), pages 363-378, June.
  4. Marc Gronwald, 2009. "Reconsidering the macroeconomics of the oil price in Germany: testing for causality in the frequency domain," Empirical Economics, Springer, Springer, vol. 36(2), pages 441-453, May.
  5. Assenmacher-Wesche, Katrin & Gerlach, Stefan, 2006. "Money at Low Frequencies," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5868, C.E.P.R. Discussion Papers.
  6. E. C. Mamatzakis, 2005. "The dynamic responses of growth to tax structure for Greece," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 12(3), pages 177-180.
  7. Diks, C.G.H. & Panchenko, V., 2004. "A new statistic and practical guidelines for nonparametric Granger causality testing," CeNDEF Working Papers, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance 04-11, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  8. Assenmacher-Wesche, Katrin & Gerlach, Stefan & Sekine, Toshitaka, 2007. "Monetary factors and inflation in Japan," IMFS Working Paper Series 13, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.
  9. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198774501, October.
  10. Padovano, Fabio & Galli, Emma, 2002. "Comparing the growth effects of marginal vs. average tax rates and progressivity," European Journal of Political Economy, Elsevier, Elsevier, vol. 18(3), pages 529-544, September.
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Cited by:
  1. Tiwari, Aviral Kumar, 2012. "An empirical investigation of causality between producers' price and consumers' price indices in Australia in frequency domain," Economic Modelling, Elsevier, Elsevier, vol. 29(5), pages 1571-1578.
  2. Aviral Tiwari & Mihai Mutascu, 2014. "A revisit on the tax burden distribution and GDP growth: fresh evidence using a consistent nonparametric test for causality for the USA," Empirical Economics, Springer, Springer, vol. 46(3), pages 961-972, May.

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