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Discretionary Tax Changes and the Macroeconomic Activity: New Narrative Evidence from Australia

Author

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  • Changchen Ge

Abstract

This paper investigates the effects of discretionary tax changes on economic activity in Australia. Using official records, including Budget Reports and Election Speeches, I construct a narrative-based dataset that identifies the revenue impact, timing, and motivation of all major Commonwealth tax policy changes from 1983Q4 to 2018Q4. This approach enables the identification of legislated tax changes that are unrelated to contemporaneous economic conditions. To estimate their macroeconomic effects, I use unanticipated exogenous tax changes as an instrument for tax revenue. The results indicate that tax cuts stimulate economic activity in the short run through consumption and investment; however, these gains are offset within two years due to contractionary monetary policy and a deterioration in the trade balance.

Suggested Citation

  • Changchen Ge, 2024. "Discretionary Tax Changes and the Macroeconomic Activity: New Narrative Evidence from Australia," CAMA Working Papers 2024-63, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University, revised May 2025.
    • Handle: RePEc:een:camaaa:2024-63
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    File URL: https://crawford.anu.edu.au/sites/default/files/2025-05/63_2024_Ge_Revised_May2025.pdf
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    File URL: https://crawford.anu.edu.au/sites/default/files/2025-05/63a_2024_Ge_Original_Oct2024.pdf
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    More about this item

    Keywords

    narrative approach; tax multiplier; Australia;
    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
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • N17 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Africa; Oceania

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