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Legislative tax announcements and GDP: Evidence from the United States, Germany, and the United Kingdom

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  • Hayo, Bernd
  • Mierzwa, Sascha

Abstract

We study the announcement effect of legislated tax changes on GDP in the US, Germany, and the UK. Using, as the shock of interest, narratively identified information about future tax changes at the quarter of their introduction to the legislative body, we analyse the dynamic results of Local Projections. After drafting tax cuts, economic activity declines (increases) in the US (the UK), but remains unaffected in Germany. When allowing the responses to vary over the business cycle, we find evidence that US GDP drops regardless of the business cycle, whereas UK GDP rises only during non-recessionary times. German GDP rises (drops) during recessions (non-recessions).

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  • Hayo, Bernd & Mierzwa, Sascha, 2022. "Legislative tax announcements and GDP: Evidence from the United States, Germany, and the United Kingdom," Economics Letters, Elsevier, vol. 216(C).
    • Handle: RePEc:eee:ecolet:v:216:y:2022:i:c:s0165176522001549
    DOI: 10.1016/j.econlet.2022.110548
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    Cited by:

    1. Albina Latifi & Viktoriia Naboka-Krell & Peter Tillmann & Peter Winker, 2023. "Fiscal Policy in the Bundestag: Textual Analysis and Macroeconomic Effects," MAGKS Papers on Economics 202307, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    2. Sascha Mierzwa, 2021. "Technical Appendix: Tax Laws and Revenue Effects," MAGKS Papers on Economics 202139, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    3. Renzo Orsi & Knut Lehre Seip, 2023. "Do Increased Tax Base and Reductions in the Underground Economy Compensate for Lost Tax Revenue Following a Tax Reduction Policy? Evidence from Italy 1982 to 2006," Economies, MDPI, vol. 11(7), pages 1-19, June.

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    More about this item

    Keywords

    Fiscal policy; Tax policy; Legislated tax changes; Announcement effect; State dependence; United States; Germany; United Kingdom; Local Projections; Narrative approach;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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