The Effects of Legislated Tax Changes in Germany
AbstractThis paper studies the short-run macroeconomic effects of legislated tax changes in Germany using a vector autoregression (VAR) approach. Identification of the tax shock follows the narrative approach recently proposed by Romer and Romer (2010). Results indicate a moderate, but statistically significant, reduction in output as well as a strong offsetting monetary policy reaction following announcement of the tax policy. In response to a 1 percent increase in the tax-to-GDP ratio, the peak output reduction is about 0.7 percent. Distinguishing between anticipation and implementation effects suggests that tax changes affect GDP prior to actual implementation, whereas effects around the implementation period are insignificant, which is arguably due to the offsetting, forward-looking monetary policy reaction.
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Bibliographic InfoPaper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 201142.
Length: 34 pages
Date of creation: 2011
Date of revision:
Publication status: Forthcoming in
Legislated Tax Change; Narrative Approach; Fiscal Policy; Tax Policy;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
- K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
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