Does tax reduction have an effect on gross domestic product? An empirical investigation

Knut L. Seip
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Knut L. Seip: Oslo Metropolitan University

Working Papers from Oslo Metropolitan University, Oslo Business School

Abstract: Tax reduction shocks in US economy: 1964, 1979-81 and 2002 increased gross domestic product, GDP, in the short run (≈ 3 years) so that 1% reduction increased the detrended GDP with 0.48 – 0.77 %. Following tax reductions, tax series became a leading variable to GDP for 9 to 15 years completing 1 to 2 cycles. However, in the long run, ≈ 10 years, 1 % tax reduction decreased the detrended GDP with about 0.25 %. However, tax, as Government recipts, and GDP are both composite measures so it is not unlikely that the effects may be attributable to specific components of the tax or GDP. I used a novel technique that identifies running leading relationships between time series, extracts common cycle lengths from the series and estimates lag times.

Keywords: Tax rate; Gross domestic product; GDP; monetary supply M2; Federal funds rate (search for similar items in EconPapers)
JEL-codes: C15 E02 E62 H21 (search for similar items in EconPapers)
Date: 2017
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