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The international transmission of US tax shocks: a proxy-SVAR approach

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  • Luca Metelli

    (Bank of Italy)

  • Filippo Natoli

    (Bank of Italy)

Abstract

We investigate the international propagation of tax rate shocks originating in the United States using a global vector error-correction model (GVAR). We identify shocks to corporate and personal income tax rates by using narrative series as external instruments, following the proxy-SVAR methodology. The main results of the paper are the following: (1) the domestic effects of corporate tax shocks are stronger than those of personal income tax shock; (2) spillovers are in most cases positive and significant, albeit of small size; (3) the boost to exports in recipient economies, stimulated both by stronger US demand and by real exchange rate depreciation vis-à-vis the US dollar, is the main transmission channel; financial channels (through long-term interest rates) also play a role.

Suggested Citation

  • Luca Metelli & Filippo Natoli, 2019. "The international transmission of US tax shocks: a proxy-SVAR approach," Temi di discussione (Economic working papers) 1223, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1223_19
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    3. Cruz, Manuel Máximo & Gahn, Santiago José & Morlin, Guilherme Spinato, 2022. "State-owned and multinational enterprises partnership as an import substitution strategy: A narrative ARDL approach to the case of oil contracts in Argentina (1958–1962)," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 213-223.

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    More about this item

    Keywords

    international fiscal spillovers; proxy SVAR; GVAR;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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