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Comparing the effects of discretionary tax changes between the US and the UK

Author

Listed:
  • Hussain Syed M.

    (Department of Economics, Lahore University of Management Sciences, Lahore, Pakistan)

  • Liu Lin

    (Management School, University of Liverpool, Liverpool, UK)

Abstract

The remarkable similarities of the effects of discretionary tax changes between the US and the UK, shown in (Cloyne, J. 2013. “Discretionary Tax Changes and the Macroeconomy: New Narrative Evidence from the United Kingdom. American Economic Review 103: 1507–1528.), raise the obvious concern whether the effects of tax changes at disaggregated levels in the UK still resemble those in the US. This paper investigates the issue along three dimensions – corporate and personal income tax changes, anticipated and unanticipated tax changes, and positive and negative tax changes. An important contribution of this paper is to construct a data set on exogenous changes of corporate and personal income taxes in the UK, identified from narrative sources along the lines of Cloyne (2013).

Suggested Citation

  • Hussain Syed M. & Liu Lin, 2018. "Comparing the effects of discretionary tax changes between the US and the UK," The B.E. Journal of Macroeconomics, De Gruyter, vol. 18(1), pages 1-17, January.
    • Handle: RePEc:bpj:bejmac:v:18:y:2018:i:1:p:17:n:6
    DOI: 10.1515/bejm-2016-0041
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    References listed on IDEAS

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    1. Ravn, Morten & Mertens, Karel, 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.
    2. Hussain, Syed M. & Malik, Samreen, 2016. "Asymmetric Effects of Exogenous Tax Changes," Journal of Economic Dynamics and Control, Elsevier, vol. 69(C), pages 268-300.
    3. Poterba, James M, 1988. "Are Consumers Forward Looking? Evidence from Fiscal Experiments," American Economic Review, American Economic Association, vol. 78(2), pages 413-418, May.
    4. Karel Mertens & Morten O. Ravn, 2013. "The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States," American Economic Review, American Economic Association, vol. 103(4), pages 1212-1247, June.
    5. Karel Mertens & Morten O. Ravn, 2012. "Empirical Evidence on the Aggregate Effects of Anticipated and Unanticipated US Tax Policy Shocks," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 145-181, May.
    6. Jonathan A. Parker, 1999. "The Reaction of Household Consumption to Predictable Changes in Social Security Taxes," American Economic Review, American Economic Association, vol. 89(4), pages 959-973, September.
    7. Christina D. Romer & David H. Romer, 2010. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," American Economic Review, American Economic Association, vol. 100(3), pages 763-801, June.
    8. Anh D. M. Nguyen & Luisanna Onnis & Raffaele Rossi, 2021. "The Macroeconomic Effects of Income and Consumption Tax Changes," American Economic Journal: Economic Policy, American Economic Association, vol. 13(2), pages 439-466, May.
    9. Hussain, Syed Muhammad, 2015. "The contractionary effects of tax shocks on productivity: An empirical and theoretical analysis," Journal of Macroeconomics, Elsevier, vol. 43(C), pages 93-107.
    10. Heim, Bradley T., 2007. "The Effect of Tax Rebates on Consumption Expenditures: Evidence From State Tax Rebates," National Tax Journal, National Tax Association;National Tax Journal, vol. 60(4), pages 685-710, December.
    11. James Cloyne, 2013. "Discretionary Tax Changes and the Macroeconomy: New Narrative Evidence from the United Kingdom," American Economic Review, American Economic Association, vol. 103(4), pages 1507-1528, June.
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    Citations

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    Cited by:

    1. James Cloyne & Òscar Jordà & Alan M. Taylor, 2023. "State-Dependent Local Projections: Understanding Impulse Response Heterogeneity," Working Paper Series 2023-05, Federal Reserve Bank of San Francisco.
    2. Bernd Hayo & Sascha Mierzwa, 2021. "State-Dependent Effects of Tax Changes in Germany and the United Kingdom," MAGKS Papers on Economics 202125, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    3. Hayo, Bernd & Mierzwa, Sascha, 2023. "The effect of legislated tax changes on the trade balance: Empirical evidence for the United States, Germany, and the United Kingdom," Journal of Macroeconomics, Elsevier, vol. 78(C).
    4. James Cloyne & Òscar Jordà & Alan M. Taylor, 2020. "Decomposing the Fiscal Multiplier," Working Paper Series 2020-12, Federal Reserve Bank of San Francisco.
    5. Karel Mertens, 2018. "The Near Term Growth Impact of the Tax Cuts and Jobs Act," Working Papers 1803, Federal Reserve Bank of Dallas.
    6. Hussain, Syed M. & Liu, Lin, 2023. "Macroeconomic effects of government spending shocks: New narrative evidence from Canada," Journal of Macroeconomics, Elsevier, vol. 75(C).
    7. Bernd Hayo & Sascha Mierzwa, 2020. "Stock Market Reactions to Legislated Tax Changes: Evidence from the United States, Germany, and the United Kingdom," MAGKS Papers on Economics 202047, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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    More about this item

    Keywords

    discretionary tax changes; narrative accounts; UK; US;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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