Legislative Tax Announcements and GDP: Evidence from the United States, Germany, and the United Kingdom

Bernd Hayo and Sascha Mierzwa
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Sascha Mierzwa: Philipps-Universitaet Marburg

MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: We study the announcement effect of legislated tax changes on GDP in the US, Germany, and the UK. Using, as the shock of interest, narratively identified information (Romer & Romer, 2009) about future tax changes at the quarter of their introduction to the legislative body, we analyse the dynamic results of Local Projections (Jordà , 2005). We find heterogeneous effects across the three countries: economic activity declines (increases) in the US (the UK), but remains unaffected in Germany. When allowing the responses to vary over the business cycle, we find evidence that US GDP drops regardless of the business cycle, whereas UK GDP rises only during non-recessionary times. We find significant effects for German GDP too: it rises (drops) during recessionary (non-recessionary) times. In general, consumption, investment, and employment follow in the path of GDP.

Keywords: Fiscal policy; tax policy; legislated tax changes; announcement effect; state dependence; United States; Germany; United Kingdom; local projections; narrative approach (search for similar items in EconPapers)
JEL-codes: E62 E63 H20 H30 K34 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2021
New Economics Papers: this item is included in nep-eec, nep-law, nep-mac and nep-pbe
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Citations: View citations in EconPapers (1)

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Journal Article: Legislative tax announcements and GDP: Evidence from the United States, Germany, and the United Kingdom (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:202134

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