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Empirical Evidence on the Aggregate Effects of Anticipated and Unanticipated US Tax Policy Shocks

Listed author(s):
  • Karel Mertens
  • Morten O. Ravn

We provide evidence on the dynamic effects of tax liability changes in the United States. We distinguish between surprise and anticipated tax changes. Preannounced but not yet implemented tax cuts give rise to contractions in output, investment, and hours worked while real wages increase. There are no significant anticipation effects on aggregate consumption. Implemented tax cuts, regardless of their timing, have expansionary effects, on output, consumption, investment, hours worked, and real wages. Results are shown to be robust. Tax shocks are important impulses to the US business cycle and anticipation effects have been important during several business cycle episodes. (JEL E23, E32, E62, H20, H30)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/pol.4.2.145
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File URL: http://www.aeaweb.org/aej/pol/data/2010-0152_data.zip
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Article provided by American Economic Association in its journal American Economic Journal: Economic Policy.

Volume (Year): 4 (2012)
Issue (Month): 2 (May)
Pages: 145-181

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Handle: RePEc:aea:aejpol:v:4:y:2012:i:2:p:145-81
Note: DOI: 10.1257/pol.4.2.145
Contact details of provider: Web page: https://www.aeaweb.org/aej-policy
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