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

AEJ: Policy Volume. 4, Issue 2 | Previous Article

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The Effects of Tax Shocks on Output: Not So Large, but Not Small Either

Article Citation

Perotti, Roberto. 2012. "The Effects of Tax Shocks on Output: Not So Large, but Not Small Either." American Economic Journal: Economic Policy, 4(2): 214-37.

DOI: 10.1257/pol.4.2.214

Abstract

I argue that, on theoretical grounds, the discretionary component of taxation should be allowed to have different effects than the automatic response of tax revenues to macroeconomic variables. Based on a novel dataset, I show two results. First, responses to a tax shock that allow for a distinction between the discretionary and the endogenous components of tax changes are about halfway between the large effects estimated by Romer and Romer (2010) and the smaller effects estimated, for instance, by Favero and Giavazzi (2012) or Blanchard and Perotti (2002). Second, there is almost no statistically significant evidence of anticipation effects. (JEL E23, E62, H22, H24, H25, K34)

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Authors

Perotti, Roberto (IGIER, U Bocconi)

JEL Classifications

E23: Macroeconomics: Production
E62: Fiscal Policy
H22: Taxation and Subsidies: Incidence
H24: Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
H25: Business Taxes and Subsidies including sales and value-added (VAT)
K34: Tax Law

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