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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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  1. Assenmacher-Wesche, Katrin & Gerlach, Stefan & Sekine, Toshitaka, 2008. "Monetary factors and inflation in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 22(3), pages 343-363, September.
  2. Lemmens, Aurélie & Croux, Christophe & Dekimpe, Marnik, 2008. "Measuring and testing Granger causality over the spectrum: An application to European production expectation surveys," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/205841, Katholieke Universiteit Leuven.
  3. Stefan Gerlach & Katrin Assenmacher-Wesche, 2006. "Interpreting Euro area inflation at high and low frequencies," BIS Working Papers 195, Bank for International Settlements.
  4. Katrin Assenmacher-Wesche & Stefan Gerlach, 2006. "Money Growth, Output Gaps and Inflation at Low and High Frequency: Spectral Estimates for Switzerland," Working Papers 2006-05, Swiss National Bank.
  5. Assenmacher-Wesche, Katrin & Gerlach, Stefan, 2006. "Money at Low Frequencies," CEPR Discussion Papers 5868, C.E.P.R. Discussion Papers.
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  7. Marc Gronwald, 2009. "Reconsidering the macroeconomics of the oil price in Germany: testing for causality in the frequency domain," Empirical Economics, Springer, vol. 36(2), pages 441-453, May.
  8. Padovano, Fabio & Galli, Emma, 2002. "Comparing the growth effects of marginal vs. average tax rates and progressivity," European Journal of Political Economy, Elsevier, vol. 18(3), pages 529-544, September.
  9. Breitung, Jörg & Candelon, Bertrand, 2006. "Testing for short- and long-run causality: a frequency-domain approach," Open Access publications from Maastricht University urn:nbn:nl:ui:27-19697, Maastricht University.
  10. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, September.
  11. E. C. Mamatzakis, 2005. "The dynamic responses of growth to tax structure for Greece," Applied Economics Letters, Taylor and Francis Journals, vol. 12(3), pages 177-180.
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