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The Effects of Tax Changes on Economic Activity: A Narrative Approach to Frequent Anticipations

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  • Sandra García-Uribe

Abstract

This paper studies the effects of anticipations of tax changes on economic activity through the release of tax news in the media in the United States. I provide a measure of anticipations by exploiting the content of television news. This information typically flows faster than standard measures of gross domestic product, thus I propose a mixed frequency dynamic factor model to estimate both the economic activity latent factor and the effects of anticipated tax shocks on it. I find that one-month-ahead anticipations of tax cuts significantly stimulate current economic activity while those of tax increases produce the opposite effect.

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  • Sandra García-Uribe, 2023. "The Effects of Tax Changes on Economic Activity: A Narrative Approach to Frequent Anticipations," The Economic Journal, Royal Economic Society, vol. 133(650), pages 706-727.
    • Handle: RePEc:oup:econjl:v:133:y:2023:i:650:p:706-727.
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    File URL: http://hdl.handle.net/10.1093/ej/ueac064
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