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  3. American Economic Review
  4. June 2013
  5. The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States

The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States

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Abstract

This paper estimates the dynamic effects of changes in taxes in the United States. We distinguish between changes in personal and corporate income taxes and develop a new narrative account of federal tax liability changes in these two tax components. We develop an estimator which uses narratively identified tax changes as proxies for structural tax shocks and apply it to quarterly post-WWII data. We find that short run output effects of tax shocks are large and that it is important to distinguish between different types of taxes when considering their impact on the labor market and on expenditure components.

Citation

Mertens, Karel, and Morten O. Ravn. 2013. "The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States." American Economic Review, 103 (4): 1212-47. DOI: 10.1257/aer.103.4.1212

Additional Materials

JEL Classification

  • E23 Macroeconomics: Production
  • E62 Fiscal Policy
  • 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)
  • H31 Fiscal Policies and Behavior of Economic Agents: Household
  • H32 Fiscal Policies and Behavior of Economic Agents: Firm