The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks

Christina Romer and David Romer

American Economic Review, 2010, vol. 100, issue 3, 763-801

Abstract: This paper investigates the impact of tax changes on economic activity. We use the narrative record, such as presidential speeches and Congressional reports, to identify the size, timing, and principal motivation for all major postwar tax policy actions. This analysis allows us to separate legislated changes into those taken for reasons related to prospective economic conditions and those taken for more exogenous reasons. The behavior of output following these more exogenous changes indicates that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes. (JEL E32, E62, H20, N12)

JEL-codes: E32 E62 H20 N12 (search for similar items in EconPapers)
Date: 2010
Note: DOI: 10.1257/aer.100.3.763
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Working Paper: The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks (2007)
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