IDEAS home Printed from https://ideas.repec.org/p/mar/magkse/201217.html
   My bibliography  Save this paper

Regional Effects of Federal Tax Shocks

Author

Listed:
  • Bernd Hayo

    (University of Marburg)

  • Matthias Uhl

    (University of Marburg)

Abstract

This paper studies regional output asymmetries following U.S. federal tax shocks. We estimate a vector autoregressive model for each U.S. state, utilizing the exogenous tax shock series recently proposed by Romer and Romer (2010) and find considerable variations: estimated output multipliers lie between –0.2 in Utah and –3.3 in Hawaii. Statistically, the difference between state and national output effect is significant in about half the U.S. states. Analyzing the determinants of differences in the magnitude of regional tax multipliers suggests that industry composition of output and sociodemographic characteristics help explain the observed asymmetry across U.S. states in the transmission of federal tax policy.

Suggested Citation

  • Bernd Hayo & Matthias Uhl, 2012. "Regional Effects of Federal Tax Shocks," MAGKS Papers on Economics 201217, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    • Handle: RePEc:mar:magkse:201217
    as

    Download full text from publisher

    File URL: https://www.uni-marburg.de/en/fb02/research-groups/economics/macroeconomics/research/magks-joint-discussion-papers-in-economics/papers/2012-papers/17-2012_hayo.pdf
    File Function: First version, 2012
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Roberto Perotti, 2010. "The Effects of Tax Shocks on Output: Not So Large, but Not Small Either," NBER Chapters, in: Fiscal Policy (Trans-Atlantic Public Economics Seminar, TAPES), pages 214-237, National Bureau of Economic Research, Inc.
    2. Kelejian, Harry H. & Prucha, Ingmar R., 2010. "Specification and estimation of spatial autoregressive models with autoregressive and heteroskedastic disturbances," Journal of Econometrics, Elsevier, vol. 157(1), pages 53-67, July.
    3. Christina D. Romer & David H. Romer, 2010. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," American Economic Review, American Economic Association, vol. 100(3), pages 763-801, June.
    4. Ardagna Silvia & Caselli Francesco & Lane Timothy, 2007. "Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-35, August.
    5. Andrew Mountford & Harald Uhlig, 2009. "What are the effects of fiscal policy shocks?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(6), pages 960-992.
    6. Eichenbaum, Martin & Fisher, Jonas D M, 2005. "Fiscal Policy in the Aftermath of 9/11," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(1), pages 1-22, February.
    7. Gerald Carlino & Keith Sill, 2001. "Regional Income Fluctuations: Common Trends And Common Cycles," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 446-456, August.
    8. Lewis, Jeffrey B. & Linzer, Drew A., 2005. "Estimating Regression Models in Which the Dependent Variable Is Based on Estimates," Political Analysis, Cambridge University Press, vol. 13(4), pages 345-364.
    9. Theodore M. Crone, 2005. "An Alternative Definition of Economic Regions in the United States Based on Similarities in State Business Cycles," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 617-626, November.
    10. Michael T. Owyang & Jeremy Piger & Howard J. Wall, 2005. "Business Cycle Phases in U.S. States," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 604-616, November.
    11. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-921, September.
    12. Emily Anderson & Atsushi Inoue & Barbara Rossi, 2016. "Heterogeneous Consumers and Fiscal Policy Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(8), pages 1877-1888, December.
    13. 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 145-181, May.
    14. David Albouy, 2009. "The Unequal Geographic Burden of Federal Taxation," Journal of Political Economy, University of Chicago Press, vol. 117(4), pages 635-667, August.
    15. Roberto Perotti, 2012. "The Effects of Tax Shocks on Output: Not So Large, but Not Small Either," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 214-237, May.
    16. Shafik Hebous, 2011. "The Effects Of Discretionary Fiscal Policy On Macroeconomic Aggregates: A Reappraisal," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 674-707, September.
    17. Ramey, Valerie A. & Shapiro, Matthew D., 1998. "Costly capital reallocation and the effects of government spending," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 48(1), pages 145-194, June.
    18. Carlo A. Favero & Francesco Giavazzi, 2010. "Reconciling VAR-based and Narrative Measures of the Tax-Multiplier," Working Papers 361, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    19. Kim, Soyoung & Roubini, Nouriel, 2008. "Twin deficit or twin divergence? Fiscal policy, current account, and real exchange rate in the U.S," Journal of International Economics, Elsevier, vol. 74(2), pages 362-383, March.
    20. Fatás, Antonio & Mihov, Ilian, 2001. "The Effects of Fiscal Policy on Consumption and Employment: Theory and Evidence," CEPR Discussion Papers 2760, C.E.P.R. Discussion Papers.
    21. Lawrence J. Christiano & Terry J. Fitzgerald, 1998. "The business cycle: it's still a puzzle," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 22(Q IV), pages 56-83.
    22. Carlo Favero & Francesco Giavazzi, 2012. "Measuring Tax Multipliers: The Narrative Method in Fiscal VARs," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 69-94, May.
    23. Hendry, David F., 2000. "Econometrics: Alchemy or Science?: Essays in Econometric Methodology," OUP Catalogue, Oxford University Press, number 9780198293545.
    24. Steven Yamarik, 2013. "State-Level Capital And Investment: Updates And Implications," Contemporary Economic Policy, Western Economic Association International, vol. 31(1), pages 62-72, January.
    25. Qiang Dai & Thomas Philippon, 2005. "Fiscal Policy and the Term Structure of Interest Rates," NBER Working Papers 11574, National Bureau of Economic Research, Inc.
    26. Price V. Fishback & Valentina Kachanovskaya, 2010. "In Search of the Multiplier for Federal Spending in the States During the Great Depression," NBER Working Papers 16561, National Bureau of Economic Research, Inc.
    27. Perotti, Roberto, 2011. "The Effects of Tax Shocks on Output: Not So Large, But Not Small Either," CEPR Discussion Papers 8252, C.E.P.R. Discussion Papers.
    28. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    29. Valerie A. Ramey, 2011. "Can Government Purchases Stimulate the Economy?," Journal of Economic Literature, American Economic Association, vol. 49(3), pages 673-685, September.
    30. Bernd Hayo & Matthias Uhl, 2011. "The Effects of Legislated Tax Changes in Germany," MAGKS Papers on Economics 201142, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    31. Giuseppe Fontana, 2009. "The transmission mechanism of fiscal policy: a critical assessment of current theories and empirical methodologies," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 31(4), pages 587-604, July.
    32. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1329-1368.
    33. Hoover, Kevin D. & Perez, Stephen J., 1994. "Post hoc ergo propter once more an evaluation of 'does monetary policy matter?' in the spirit of James Tobin," Journal of Monetary Economics, Elsevier, vol. 34(1), pages 47-74, August.
    34. Jeffrey Sachs & Charles Wyplosz, 1984. "Real Exchange Rate Effects of Fiscal Policy," NBER Working Papers 1255, National Bureau of Economic Research, Inc.
    35. Hess, Gregory D. & Shin, Kwanho, 1998. "Intranational business cycles in the United States," Journal of International Economics, Elsevier, vol. 44(2), pages 289-313, April.
    36. Owyang, Michael T. & Zubairy, Sarah, 2013. "Who benefits from increased government spending? A state-level analysis," Regional Science and Urban Economics, Elsevier, vol. 43(3), pages 445-464.
    37. Ari Aisen & David Hauner, 2013. "Budget deficits and interest rates: a fresh perspective," Applied Economics, Taylor & Francis Journals, vol. 45(17), pages 2501-2510, June.
    38. J. C. G. Boot & W. Feibes & J. H. C. Lisman, 1967. "Further Methods of Derivation of Quarterly Figures from Annual Data," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 16(1), pages 65-75, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tomomi Miyazaki & Haruo Kondoh, 2022. "Effects of Monetary and Fiscal Policy Interactions on Regional Employment: Evidence from Japan," Discussion Papers 2206, Graduate School of Economics, Kobe University.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ramey, V.A., 2016. "Macroeconomic Shocks and Their Propagation," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 71-162, Elsevier.
    2. Virkola, Tuomo, 2014. "Exchange Rate Regime, Fiscal Foresight and the Effectiveness of Fiscal Policy in a Small Open Economy," ETLA Reports 20, The Research Institute of the Finnish Economy.
    3. Mertens, Karel & Ravn, Morten O., 2014. "A reconciliation of SVAR and narrative estimates of tax multipliers," Journal of Monetary Economics, Elsevier, vol. 68(S), pages 1-19.
    4. Agata Szymańska, 2018. "Wpływ polityki fiskalnej na PKB w krajach Unii Europejskiej spoza strefy euro," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 49-74.
    5. Riera-Crichton, Daniel & Vegh, Carlos A. & Vuletin, Guillermo, 2016. "Tax multipliers: Pitfalls in measurement and identification," Journal of Monetary Economics, Elsevier, vol. 79(C), pages 30-48.
    6. Pablo Hernández de Cos & Enrique Moral-Benito, 2016. "Fiscal multipliers in turbulent times: the case of Spain," Empirical Economics, Springer, vol. 50(4), pages 1589-1625, June.
    7. Piotr Krajewski, 2017. "Regionalne zróżnicowanie oddziaływania wydatków rządowych na zatrudnienie – wnioski z analizy SVAR," Bank i Kredyt, Narodowy Bank Polski, vol. 48(1), pages 73-96.
    8. Sebastian Gechert & Ansgar Rannenberg, 2014. "Are Fiscal Multipliers Regime-Dependent? A Meta Regression Analysis," IMK Working Paper 139-2014, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    9. Jocelyn Boussard & Francisco de Castro & Matteo Salto, 2012. "Fiscal Multipliers and Public Debt Dynamics in Consolidations," European Economy - Economic Papers 2008 - 2015 460, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    10. Alfred A.Haug & Tomasz Jędrzejowicz & Anna Sznajderska, 2013. "Combining monetary and fiscal policy in an SVAR for a small open economy," NBP Working Papers 168, Narodowy Bank Polski.
    11. Dragan Tevdovski & Goran Petrevski & Jane Bogoev, 2019. "The effects of macroeconomic policies under fixed exchange rates: A Bayesian VAR analysis," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 32(1), pages 2138-2160, January.
    12. Owyang, Michael T. & Zubairy, Sarah, 2013. "Who benefits from increased government spending? A state-level analysis," Regional Science and Urban Economics, Elsevier, vol. 43(3), pages 445-464.
    13. Chibi Abderrahim & Chekouri Sidi Mohamed & Benbouziane Mohamed, 2019. "The Impact of Fiscal Policy on Economic Activity over the Business Cycle: An Empirical Investigation in the Case of Algeria," Review of Middle East Economics and Finance, De Gruyter, vol. 15(3), pages 1-23, December.
    14. Shafik Hebous, 2011. "The Effects Of Discretionary Fiscal Policy On Macroeconomic Aggregates: A Reappraisal," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 674-707, September.
    15. Roberto Perotti, 2008. "In Search of the Transmission Mechanism of Fiscal Policy," NBER Chapters, in: NBER Macroeconomics Annual 2007, Volume 22, pages 169-226, National Bureau of Economic Research, Inc.
    16. Karel Mertens & Morten O. Ravn, 2013. "The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States," American Economic Review, American Economic Association, vol. 103(4), pages 1212-1247, June.
    17. Hussain, Syed M. & Liu, Lin, 2023. "Macroeconomic effects of government spending shocks: New narrative evidence from Canada," Journal of Macroeconomics, Elsevier, vol. 75(C).
    18. Forni, Mario & Gambetti, Luca, 2016. "Government spending shocks in open economy VARs," Journal of International Economics, Elsevier, vol. 99(C), pages 68-84.
    19. Ricco, Giovanni & Ellahie, Atif, 2012. "Government Spending Reloaded: Fundamentalness and Heterogeneity in Fiscal SVARs," MPRA Paper 42105, University Library of Munich, Germany.
    20. Jia, Bijie, 2018. "Second Thoughts on Estimating Expansionary Fiscal Policy E ffects in the United States," MPRA Paper 90298, University Library of Munich, Germany.

    More about this item

    Keywords

    Fiscal Policy Tax Policy Narrative Approach U.S. States Regional Effects Asymmetries in Fiscal Policy Transmission;

    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
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mar:magkse:201217. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bernd Hayo (email available below). General contact details of provider: https://edirc.repec.org/data/vamarde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.