The Macroeconomic Effects of Income and Consumption Tax Changes

Anh Nguyen, Luisanna Onnis and Raffaele Rossi

American Economic Journal: Economic Policy, 2021, vol. 13, issue 2, 439-66

Abstract: This paper estimates the effects of exogenous changes in income and consumption taxes. The tax shocks are proxied with a narrative account of tax liability changes in the United Kingdom. Income tax cuts have large effects on GDP, private consumption, and investment. The effects of consumption tax cuts are modest and not statistically significant on GDP and its components. Shifting the burden of taxation from income to consumption is expansionary. Consistent with conventional public finance theories, these results indicate that it is crucial to distinguish between direct and indirect taxation when studying the transmission mechanism of fiscal policy.

JEL-codes: E21 E22 E23 H24 H25 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (14)

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Related works:
Working Paper: The Macroeconomic Effects of Income and Consumption Tax Changes (2017)
Working Paper: The Macroeconomic Effects of Income and Consumption Tax Changes (2016)
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DOI: 10.1257/pol.20170241

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