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Empirical Evidence on the Aggregate Effects of Anticipated and Unanticipated U.S. Tax Policy Shocks

Listed author(s):
  • Karel Mertens
  • Morten Ravn

We provide empirical evidence on the dynamics 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. Results are shown to be very robust. We argue that tax shocks are empirically important impulses to the U.S. business cycle and that anticipation effects have been important during several business cycle episodes.

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File URL: http://www.nber.org/papers/w16289.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16289.

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Date of creation: Aug 2010
Publication status: published as Karel Mertens & Morten O. Ravn, 2012. "Empirical Evidence on the Aggregate Effects of Anticipated and Unanticipated US Tax Policy Shocks," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 145-81, May.
Handle: RePEc:nbr:nberwo:16289
Note: EFG PE
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