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The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States

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  • Mertens, Karel
  • Ravn, Morten O

Abstract

This paper estimates the dynamic effects of changes in taxes in the United States. We distinguish between the effects of changes in personal and corporate income taxes using a new narrative account of federal tax liability changes in these two tax components. We develop an estimator in which narratively identified tax changes are used as proxies for structural tax shocks and apply it to quarterly post WWII US data. We find that short run output effects of tax shocks are large and that it is important to distinguish between different types of taxes when considering their impact on the labor market and the major expenditure components.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8554.

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Date of creation: Sep 2011
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Handle: RePEc:cpr:ceprdp:8554

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Keywords: fiscal policy; measurement error; narrative identification; tax changes;

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References

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  1. Karel Mertens & Morten Overgaard Ravn, 2011. "Understanding the Aggregate Effects of Anticipated and Unanticipated Tax Policy Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 27-54, January.
  2. Karel Mertens & Morten O. Ravn, 2012. "Empirical Evidence on the Aggregate Effects of Anticipated and Unanticipated US Tax Policy Shocks," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 145-81, May.
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Citations

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Cited by:
  1. Samuel Wills, 2013. "Optimal Monetary Responses to Oil Discoveries," Economics Series Working Papers OxCarre Research Paper 12, University of Oxford, Department of Economics.
  2. Emily Anderson & Atsushi Inoue & Barbara Rossi, 2012. "Heterogeneous Consumers and Fiscal Policy Shocks," 2012 Meeting Papers 261, Society for Economic Dynamics.
  3. James H. Stock & Mark W. Watson, 2012. "Disentangling the Channels of the 2007-2009 Recession," NBER Working Papers 18094, National Bureau of Economic Research, Inc.
  4. Mark Gertler & Peter Karadi, 2014. "Monetary Policy Surprises, Credit Costs and Economic Activity," NBER Working Papers 20224, National Bureau of Economic Research, Inc.
  5. Oliver de Groot & Fédéric Holm-Hadulla & Nadine Leiner-Killinger, 2013. "Cost of borrowing shocks and fiscal adjustment," Finance and Economics Discussion Series 2013-59, Board of Governors of the Federal Reserve System (U.S.).
  6. Cloyne, James & Surico, Paolo, 2014. "Household debt and the dynamic effects of income tax changes," Bank of England working papers 491, Bank of England.
  7. Kliem, Martin & Kriwoluzky, Alexander, 2013. "Reconciling narrative monetary policy disturbances with structural VAR model shocks?," Economics Letters, Elsevier, vol. 121(2), pages 247-251.

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