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Does tax reduction have an effect on gross domestic product? An empirical investigation

Author

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  • Knut L. Seip

    (Oslo Metropolitan University)

Abstract

Tax reduction shocks in US economy: 1964, 1979-81 and 2002 increased gross domestic product, GDP, in the short run (≈ 3 years) so that 1% reduction increased the detrended GDP with 0.48 – 0.77 %. Following tax reductions, tax series became a leading variable to GDP for 9 to 15 years completing 1 to 2 cycles. However, in the long run, ≈ 10 years, 1 % tax reduction decreased the detrended GDP with about 0.25 %. However, tax, as Government recipts, and GDP are both composite measures so it is not unlikely that the effects may be attributable to specific components of the tax or GDP. I used a novel technique that identifies running leading relationships between time series, extracts common cycle lengths from the series and estimates lag times.

Suggested Citation

  • Knut L. Seip, 2017. "Does tax reduction have an effect on gross domestic product? An empirical investigation," Working Papers 201701, Oslo Metropolitan University, Oslo Business School.
    • Handle: RePEc:oml:wpaper:201701
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    File URL: http://hdl.handle.net/20.500.12199/1333
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    More about this item

    Keywords

    Tax rate; Gross domestic product; GDP; monetary supply M2; Federal funds rate;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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