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Empirical evidence on the aggregate effects of anticipated and unanticipated US tax policy shocks

  • Karel Mertens

    (Cornell University)

  • Morten O. Ravn

    (University College London
    University of Southampton
    CEPR)

The authors provide empirical evidence on the dynamic effects of tax liability changes in the United States. We distinguish between surprise and anticipated tax changes using a timing convention. We document that pre-announced but not yet implemented tax cuts give rise to contractions in output, investment and hours worked, while real wages increase. In contrast, there are no significant anticipation effects on aggregate consumption. Implemented tax cuts, regardless of their timing, have expansionary and persistent effects on output, consumption, investment, hours worked and real wages. The findings are shown to be very robust. We argue that tax shocks are empirically important impulses to the US business cycle and that anticipation effects have been significant over several business cycle episodes

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Paper provided by National Bank of Belgium in its series Working Paper Research with number 181.

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Length: 60 pages
Date of creation: Nov 2009
Date of revision:
Handle: RePEc:nbb:reswpp:200911-13
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  7. Andrew Mountford & Harald Uhlig, 2005. "What are the Effects of Fiscal Policy Shocks?," SFB 649 Discussion Papers SFB649DP2005-039, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
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  16. Hall, Robert E, 1971. "The Dynamic Effects of Fiscal Policy in an Economy With Foresight," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 229-44, April.
  17. Valerie A. Ramey, 2011. "Identifying Government Spending Shocks: It's all in the Timing," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 1-50.
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