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The output effects of tax changes: narrative evidence from Spain

Author

Listed:
  • Paula Gil

    (Universidad Complutense)

  • Francisco Martí

    (Banco de España)

  • Richard Morris

    (European Central Bank)

  • Javier J. Pérez

    (Banco de España)

  • Roberto Ramos

    (Banco de España)

Abstract

This paper estimates the GDP impact of legislated tax changes in Spain using a newly constructed narrative record for the period 1986–2015. Our baseline estimates suggest that a 1% of GDP increase in exogenous taxes depresses output by around 1.3% after 1 year, this negative effect fading away at more distant horizons. We also find that the effects of changes in indirect taxes are larger and that, following a tax increase, investment reacts more than consumption. Overall, our set of estimates is consistent with negative output effects triggered by tax increases, yet the quantitative effects are subject to non-negligible uncertainty that is reflected in wide confidence bands, in line with the extant literature for other countries.

Suggested Citation

  • Paula Gil & Francisco Martí & Richard Morris & Javier J. Pérez & Roberto Ramos, 2019. "The output effects of tax changes: narrative evidence from Spain," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 10(1), pages 1-23, March.
    • Handle: RePEc:spr:series:v:10:y:2019:i:1:d:10.1007_s13209-018-0173-5
    DOI: 10.1007/s13209-018-0173-5
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    Cited by:

    1. Silvia Fresneda & Nuria Reguera & Fernando Casas, 2021. "De-agentification Process in Spanish Regional Governments," Hacienda Pública Española / Review of Public Economics, IEF, vol. 236(1), pages 39-64, March.
    2. Karel Mertens, 2018. "The Near Term Growth Impact of the Tax Cuts and Jobs Act," Working Papers 1803, Federal Reserve Bank of Dallas.
    3. Susana Párraga Rodríguez, 2023. "The aggregate effects of government income transfers shocks: EU evidence," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 14(1), pages 1-28, March.
    4. Miguel Almunia & David Lopez-Rodriguez, 2019. "The elasticity of taxable income in Spain: 1999–2014," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 10(3), pages 281-320, November.
    5. Timo Wollmershäuser & Wolfgang Nierhaus & Nikolay Hristov & Dorine Boumans & Marcell Göttert & Christian Grimme & S. Lauterbacher & Robert Lehmann & Wolfgang Meister & Andreas Peichl & Magnus Reif & F, 2017. "ifo Economic Forecast 2017/2018: Germany’s Economy Is Strong and Stable," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 70(12), pages 30-83, June.
    6. Gunter, Samara & Riera-Crichton, Daniel & Vegh, Carlos A. & Vuletin, Guillermo, 2021. "Non-linear effects of tax changes on output: The role of the initial level of taxation," Journal of International Economics, Elsevier, vol. 131(C).
    7. Dennis Bonam & Paul Konietschke, 2020. "Tax multipliers across the business cycle," Working Papers 699, DNB.
    8. Danilo Leiva-Leon, 2017. "Monitoring the Spanish Economy through the Lenses of Structural Bayesian VARs," Occasional Papers 1706, Banco de España.
    9. Mario Alloza & Danilo Leiva-León & Alberto Urtasun, 2022. "The response of private investment to an increase in public investment," Economic Bulletin, Banco de España, issue 2/2022.
    10. Roos, Michael W. M. & Reccius, Matthias, 2021. "Narratives in economics," Ruhr Economic Papers 922, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    11. Michael Roos & Matthias Reccius, 2021. "Narratives in economics," Papers 2109.02331, arXiv.org, revised Dec 2022.
    12. Cláudia Braz & Maria Manuel Campos, 2021. "Challenges in measuring fiscal effects," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.

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    More about this item

    Keywords

    Tax shocks; Narrative record; Fiscal policy; GDP growth;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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