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How is Tax Policy Conducted over the Business Cycle?

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  • Carlos A. Vegh
  • Guillermo Vuletin

Abstract

It is well known by now that government spending has typically been procyclical in developing economies but acyclical or countercyclical in industrial countries. Little, if any, is known, however, about the cyclical behavior of tax rates (as opposed to tax revenues, which are endogenous to the business cycle and hence cannot shed light on the cyclicality of tax policy). We build a novel dataset on tax rates for 62 countries for the period 1960-2013 that comprises corporate income, personal income, and value-added tax rates. We find that, by and large, tax policy is acyclical in industrial countries but mostly procyclical in developing countries. Further, tax policy in countries with better institutions and/or more integrated with world capital markets tends to be less procyclical/more countercyclical.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17753.

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Date of creation: Jan 2012
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Handle: RePEc:nbr:nberwo:17753

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References

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  1. Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2004. "When it rains, it pours: Procyclical capital flows and macroeconomic policies," MPRA Paper 13883, University Library of Munich, Germany.
  2. Jeffrey A. Frankel & Carlos A. Végh & Guillermo Vuletin, 2011. "On Graduation from Fiscal Procyclicality," NBER Working Papers 17619, National Bureau of Economic Research, Inc.
  3. Huang, Chao-Hsi & Lin, Kenneth S., 1993. "Deficits, government expenditures, and tax smoothing in the United States: 1929-1988," Journal of Monetary Economics, Elsevier, Elsevier, vol. 31(3), pages 317-339, June.
  4. V. V. Chari & Patrick J. Kehoe, 1998. "Optimal fiscal and monetary policy," Staff Report, Federal Reserve Bank of Minneapolis 251, Federal Reserve Bank of Minneapolis.
  5. Ethan Ilzetzki & Carlos A. Vegh, 2008. "Procyclical Fiscal Policy in Developing Countries: Truth or Fiction?," NBER Working Papers 14191, National Bureau of Economic Research, Inc.
  6. Ugo Panizza & Dany Jaimovich, 2007. "Procyclicality or Reverse Causality?," Research Department Publications, Inter-American Development Bank, Research Department 4508, Inter-American Development Bank, Research Department.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Tax rates over the business cycle
    by Economic Logician in Economic Logic on 2012-02-08 15:52:00
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Cited by:
  1. Maren Froemel, 2014. "Imperfect Financial Markets and the Cyclicality of Social Spending," Working Paper Series of the Department of Economics, University of Konstanz 2014-11, Department of Economics, University of Konstanz.
  2. Frankel, Jeffrey A. & Vegh, Carlos A. & Vuletin, Guillermo, 2013. "On graduation from fiscal procyclicality," Journal of Development Economics, Elsevier, Elsevier, vol. 100(1), pages 32-47.
  3. Daniel Riera-Crichton & Carlos A. Vegh & Guillermo Vuletin, 2012. "Tax Multipliers: Pitfalls in Measurement and Identification," NBER Working Papers 18497, National Bureau of Economic Research, Inc.
  4. Pierre MANDON, 2014. "Evaluating Treatment Effect and Causal Effect of Fiscal Rules on Procyclicality New assessments on old debate: rules vs. discretion," Working Papers halshs-01015760, HAL.
  5. Alexander Klemm, 2014. "Fiscal Policy in Latin America over the Cycle," IMF Working Papers 14/59, International Monetary Fund.
  6. Céline CARRERE & Jaime de MELO, 2012. "Fiscal Spending and Economic Growth: Some Stylized Facts," Working Papers P35, FERDI.
  7. Christopher Reicher, 2013. "A set of estimated fiscal rules for a cross-section of countries: Stabilization and consolidation through which instruments?," Kiel Working Papers 1850, Kiel Institute for the World Economy.
  8. Juan Carlos Hatchondo & Leonardo Martinez & Francisco Roch, 2012. "Fiscal rules and the sovereign default premium," Working Paper, Federal Reserve Bank of Richmond 12-01, Federal Reserve Bank of Richmond.
  9. Panizza, Ugo & Presbitero, Andrea F., 2012. "Public debt and economic growth: Is there a causal effect?," POLIS Working Papers, Institute of Public Policy and Public Choice - POLIS 168, Institute of Public Policy and Public Choice - POLIS.
  10. Frömel, Maren, 2013. "Imperfect Financial Markets, External Debt, and the Cyclicality of Social Transfers," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79820, Verein für Socialpolitik / German Economic Association.
  11. Carlos A. Vegh & Guillermo Vuletin, 2012. "Overcoming the Fear of Free Falling: Monetary Policy Graduation in Emerging Markets," NBER Working Papers 18175, National Bureau of Economic Research, Inc.
  12. Carlos A. Vegh & Guillermo Vuletin, 2014. "Social Implications of Fiscal Policy Responses During Crises," NBER Working Papers 19828, National Bureau of Economic Research, Inc.
  13. Francisca Guedes de Oliveira & Leonardo Costa, 2013. "The Vat Laffer Curve And The Business Cycle," Working Papers de Economia (Economics Working Papers), Faculdade de Economia e Gestão, Universidade Católica Portuguesa (Porto) 02, Faculdade de Economia e Gestão, Universidade Católica Portuguesa (Porto).
  14. Reicher, Claire, 2014. "Systematic fiscal policy and macroeconomic performance: A critical overview of the literature," Economics Discussion Papers 2014-29, Kiel Institute for the World Economy.
  15. Strawczynski, Michel, 2013. "Cyclicality of statutory tax rates," MPRA Paper 48821, University Library of Munich, Germany.

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