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American Economic Journal: Economic Policy: Vol. 4 No. 2 (May 2012)

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Empirical Evidence on the Aggregate Effects of Anticipated and Unanticipated US Tax Policy Shocks

Article Citation

Mertens, Karel, and Morten O. Ravn. 2012. "Empirical Evidence on the Aggregate Effects of Anticipated and Unanticipated US Tax Policy Shocks." American Economic Journal: Economic Policy, 4(2): 145-81.

DOI: 10.1257/pol.4.2.145

Abstract

We provide evidence on the dynamic effects of tax liability changes in the United States. We distinguish between surprise and anticipated tax changes. Preannounced but not yet implemented tax cuts give rise to contractions in output, investment, and hours worked while real wages increase. There are no significant anticipation effects on aggregate consumption. Implemented tax cuts, regardless of their timing, have expansionary effects, on output, consumption, investment, hours worked, and real wages. Results are shown to be robust. Tax shocks are important impulses to the US business cycle and anticipation effects have been important during several business cycle episodes. (JEL E23, E32, E62, H20, H30)

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Authors

Mertens, Karel (Cornell U)
Ravn, Morten O. (U College London)

JEL Classifications

E23: Macroeconomics: Production
E32: Business Fluctuations; Cycles
E62: Fiscal Policy
H20: Taxation, Subsidies, and Revenue: General
H30: Fiscal Policies and Behavior of Economic Agents: General

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