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The Short-Term Effects of Tax Changes—Evidence for State Dependence: Working Paper 2016-03

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  • U. Devrim Demirel

Abstract

This study evaluates how the state of the economy, as measured by the rate of unemployment, influences the short-term effects of tax changes on output and employment. I examine the effects of narratively identified tax changes by employing two alternative approaches to estimating state-dependent impulse response functions that have been widely used in the recent literature. Both approaches suggest that short-term effects of tax changes on output and employment become smaller during times of higher unemployment. That may be because changes in incentives governing the supply

Suggested Citation

  • U. Devrim Demirel, 2016. "The Short-Term Effects of Tax Changes—Evidence for State Dependence: Working Paper 2016-03," Working Papers 51824, Congressional Budget Office.
    • Handle: RePEc:cbo:wpaper:51824
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    File URL: https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/workingpaper/51824-Working_Paper_2016_03.pdf
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    Citations

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    Cited by:

    1. Fotiou, Alexandra & Shen, Wenyi & Yang, Shu-Chun S., 2020. "The fiscal state-dependent effects of capital income tax cuts," Journal of Economic Dynamics and Control, Elsevier, vol. 117(C).
    2. Valerie A. Ramey, 2019. "Ten Years after the Financial Crisis: What Have We Learned from the Renaissance in Fiscal Research?," Journal of Economic Perspectives, American Economic Association, vol. 33(2), pages 89-114, Spring.
    3. U. Devrim Demirel, 2020. "Labor Market Effects of Tax Changes in Times of High and Low Unemployment: Working Paper 2020-05," Working Papers 56522, Congressional Budget Office.
    4. Dennis Bonam & Paul Konietschke, 2020. "Tax multipliers across the business cycle," Working Papers 699, DNB.
    5. Demirel, Ufuk Devrim, 2021. "The short-term effects of tax changes: The role of state dependence," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 918-934.

    More about this item

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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