Macroeconomic effects of tax rate and base changes: Evidence from fiscal consolidations

Era Dabla-Norris and Frederico Lima

European Economic Review, 2023, vol. 153, issue C

Abstract: This paper examines the macroeconomic effects of tax changes during fiscal consolidations. We build a new narrative dataset of tax changes during fiscal consolidation years, containing detailed information on the expected yield, motivation, and announcement and implementation dates of more than 2000 tax measures across 10 OECD countries. Using this data, we then analyze the macroeconomic impact of tax changes, distinguishing between tax rate and tax base changes, and further differentiating between changes in personal income, corporate income, and value added taxes. Our results suggest that base broadening during fiscal consolidations leads to smaller output and employment declines compared to rate hikes, even when distinguishing between tax types.

Keywords: Tax multiplier; Tax base; Tax rate; Narrative (search for similar items in EconPapers)
JEL-codes: E32 E62 H24 H25 N10 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:153:y:2023:i:c:s0014292123000284

DOI: 10.1016/j.euroecorev.2023.104399

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