How large are the effects of tax changes?
AbstractWe use the time series of shifts in U.S. taxes constructed by Romer and Romer to estimate tax multipliers. Differently from the single-equation approach adopted by Romer and Romer, our estimation strategy (a Var that includes output, government spending and revenues, inflation and the nominal interest rate) does not rely upon the assumption that tax shocks are orthogonal to each other as well as to lagged values of other macro variables. Our estimated multiplier is much smaller: one, rather than three at a three-year horizon. When we split the sample in two sub-samples (before and after 1980) we find, before 1980, a multiplier whose size is never greater than one, after 1980 a multiplier not significantly different from zero. Following the findings in Bohn (1998), we also experiment with a model that includes debt and the non-linear government budget constraint. We find that, while in general not very important, the non-linearity that arises from the budget constraint makes a difference after 1980, when the response offiscal variables to the level of the debt becomes stronger.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 350.
Date of creation: 2009
Date of revision:
Contact details of provider:
Postal: via Rontgen, 1 - 20136 Milano (Italy)
Web page: http://www.igier.unibocconi.it/
Other versions of this item:
- Carlo Favero & Francesco Giavazzi, 2009. "How large are the effects of tax changes?," NBER Working Papers 15303, National Bureau of Economic Research, Inc.
- Favero, Carlo A. & Giavazzi, Francesco, 2009. "How Large Are the Effects of Tax Changes?," CEPR Discussion Papers 7439, C.E.P.R. Discussion Papers.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-10 (All new papers)
- NEP-CBA-2009-10-10 (Central Banking)
- NEP-MAC-2009-10-10 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Marco Lippi & Lucrezia Reichlin, 1994.
"VAR analysis, non-fundamental representations, Blashke matrices,"
ULB Institutional Repository
2013/10151, ULB -- Universite Libre de Bruxelles.
- Lippi, Marco & Reichlin, Lucrezia, 1994. "VAR analysis, nonfundamental representations, blaschke matrices," Journal of Econometrics, Elsevier, vol. 63(1), pages 307-325, July.
- Andrew Mountford & Harald Uhlig, 2009.
"What are the effects of fiscal policy shocks?,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 24(6), pages 960-992.
- Mountford, Andrew & Uhlig, Harald, 2002. "What are the Effects of Fiscal Policy Shocks?," CEPR Discussion Papers 3338, C.E.P.R. Discussion Papers.
- Andrew Mountford & Harald Uhlig, 2008. "What are the Effects of Fiscal Policy Shocks?," NBER Working Papers 14551, National Bureau of Economic Research, Inc.
- Andrew Mountford & Harald Uhlig, 2005. "What are the Effects of Fiscal Policy Shocks?," SFB 649 Discussion Papers SFB649DP2005-039, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Mountford, A.W. & Uhlig, H.F.H.V.S., 2002. "What are the Effects of Fiscal Policy Shocks?," Discussion Paper 2002-31, Tilburg University, Center for Economic Research.
- Tom Doan, . "RATS programs to replicate Mountford and Uhlig JAE 2009 sign-constrained VAR," Statistical Software Components RTZ00121, Boston College Department of Economics.
- Mertens, Karel & Ravn, Morten O., 2008.
"The Aggregate Effects of Anticipated and Unanticipated U.S. Tax Policy Shocks: Theory and Empirical Evidence,"
CEPR Discussion Papers
6673, C.E.P.R. Discussion Papers.
- Karel Mertens & Morten O. Ravn, 2008. "The Aggregate Effects of Anticipated and Unanticipated U.S. Tax Policy Shocks: Theory and Empirical Evidence," Economics Working Papers ECO2008/05, European University Institute.
- Morten O. Ravn & Karel Mertens, 2008. "The Aggregate Effects of Anticipated and Unanticipated U.S. Tax Policy Shocks: Theory and Empirical Evidence," 2008 Meeting Papers 575, Society for Economic Dynamics.
- Craig Burnside & Martin Eichenbaum & Jonas Fisher, 2003.
"Fiscal Shocks and Their Consequences,"
NBER Working Papers
9772, National Bureau of Economic Research, Inc.
- Eric M. Leeper & Todd B. Walker & Shu-Chun Susan Yang, 2008.
"Fiscal Foresight: Analytics and Econometrics,"
NBER Working Papers
14028, National Bureau of Economic Research, Inc.
- Fabio C. Bagliano & Carlo A. Favero, .
"Information from financial markets and VAR measures of monetary policy,"
135, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Bagliano, Fabio C. & Favero, Carlo A., 1999. "Information from financial markets and VAR measures of monetary policy," European Economic Review, Elsevier, vol. 43(4-6), pages 825-837, April.
- Luc Eyraud & Anke Weber, 2013. "The Challenge of Debt Reduction during Fiscal Consolidation," IMF Working Papers 13/67, International Monetary Fund.
- Alan J. Auerbach & William G. Gale & Benjamin H. Harris, 2010. "Activist Fiscal Policy," Journal of Economic Perspectives, American Economic Association, vol. 24(4), pages 141-64, Fall.
- Alan J. Auerbach & William G. Gale, 2009.
"Activist Fiscal Policy to Stabilize Economic Activity,"
NBER Working Papers
15407, National Bureau of Economic Research, Inc.
- Alan J. Auerbach & William G. Gale, 2009. "Activist fiscal policy to stabilize economic activity," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 327-374.
- Reda, Cherif & Fuad, Hasanov, 2010. "Public Debt Dynamics and Debt Feedback," MPRA Paper 27918, University Library of Munich, Germany.
- Andrew Bossie, 2013. "The Effect of Fiscal Policy Shocks on the Flow of Funds," 2013 Papers pbo741, Job Market Papers.
- Baum, Anja & Koester, Gerrit B., 2011. "The impact of fiscal policy on economic activity over the business cycle - evidence from a threshold VAR analysis," Discussion Paper Series 1: Economic Studies 2011,03, Deutsche Bundesbank, Research Centre.
- Shafik Hebous, 2011.
"The Effects Of Discretionary Fiscal Policy On Macroeconomic Aggregates: A Reappraisal,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 25(4), pages 674-707, 09.
- Hebous, Shafik, 2009. "The Effects of Discretionary Fiscal Policy on Macroeconomic Aggregates: A Reappraisal," MPRA Paper 23300, University Library of Munich, Germany, revised Jun 2010.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.