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Tax multipliers across the business cycle

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  • Dennis Bonam
  • Paul Konietschke

Abstract

We estimate the impact of tax shocks on output across different stages of the business cycle. We do this for a panel of nine advanced economies using a harmonized dataset of narratively identified exogenous tax changes and a smooth transition local projection model. The output response to an exogenous tax shock is significant, but only during economic expansions. In recessions, the tax multiplier is insignificant, both in the short- and long run. We also find that, during booms, output only responds to tax hikes and is unresponsive to tax cuts. The results on the state-dependent and asymmetric effects of tax shocks are robust to a number of alternative model specifications and definitions of the business cycle.

Suggested Citation

  • Dennis Bonam & Paul Konietschke, 2020. "Tax multipliers across the business cycle," Working Papers 699, DNB.
  • Handle: RePEc:dnb:dnbwpp:699
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    File URL: https://www.dnb.nl/media/mdphhrg5/working_paper_699.pdf
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    2. Angela Köppl & Margit Schratzenstaller, 2022. "Macroeconomic Effects of Green Recovery Programmes. Conceptual Framing and a Review of the Empirical Literature," WIFO Working Papers 646, WIFO.

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    More about this item

    Keywords

    tax multiplier; state-dependent effects of fiscal policy; local projection method;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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