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The output effects of tax changes: narrative evidence from Spain

Listed author(s):
  • Paula Gil

    (Universidad Complutense de Madrid)

  • Francisco Martí

    (Banco de España)

  • Richard Morris

    (European Central Bank)

  • Javier J. Pérez

    ()

    (Banco de España)

  • Roberto Ramos

    (Banco de España)

This paper estimates the GDP impact of legislated tax changes in Spain using a newly constructed narrative record for the period 1986-2015. Our baseline estimates suggest that a 1% of GDP increase in exogenous taxes depresses output by around 1.3% after one year, this negative effect fading away at more distant horizons. We also find that the effect of changes in indirect taxes are larger and that, following a tax increase, investment reacts more than consumption. Overall, our set of estimates is consistent with negative output effects triggered by tax increases, yet the quantitative effects are subject to non-negligible uncertainty that is refected in wide confidence bands, in line with the extant literature for other countries.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/17/Fich/dt1721e.pdf
File Function: First version, May 2017
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Paper provided by Banco de España & Working Papers Homepage in its series Working Papers with number 1721.

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Length: 45 pages
Date of creation: May 2017
Handle: RePEc:bde:wpaper:1721
Contact details of provider: Web page: http://www.bde.es/

Web page: http://www.bde.es/bde/en/secciones/informes/Publicaciones_se/docs/
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  1. Carlo Favero & Francesco Giavazzi, 2012. "Measuring Tax Multipliers: The Narrative Method in Fiscal VARs," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 69-94, May.
  2. Andrea Pescatori & Daniel Leigh & Jaime Guajardo & Pete Devries, 2011. "A New Action-Based Dataset of Fiscal Consolidation," IMF Working Papers 11/128, International Monetary Fund.
  3. Sebastian Gechert & Christoph Paetz & Paloma Villanueva, 2016. "Top-Down vs. Bottom-Up? Reconcilling the Effects of Tax and Transfer Shocks on Output," IMK Working Paper 169-2016, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
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