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The macroeconomic effects of tax changes: Evidence using real-time data for the European Union

Wouter van der Wielen

Economic Modelling, 2020, vol. 90, issue C, 302-321

Abstract: This paper examines the macroeconomic effects of tax changes in the European Union between 2000 and 2016. The novelty of our approach hinges on the use of real-time estimates of discretionary fiscal adjustments. In particular, exploiting a unique database covering anticipated and unanticipated tax changes, we provide the first narrative panel estimates of output and employment multipliers for tax changes. Our results suggest that medium-term revenue-based output multipliers are in the range of −1.1 to −1.9 for unanticipated tax changes. Preannounced changes, on the other hand, temporarily impact economic activity inversely upon announcement, resulting in a less than one-to-one change in ex post tax receipts, but portray up to one percentage point larger employment responses. Finally, we find evidence of asymmetry between the effects of revenue increasing and decreasing measures in the European Union.

Keywords: Fiscal multipliers; Narrative approach; Discretionary tax changes; Anticipation; Asymmetry (search for similar items in EconPapers)
JEL-codes: E62 H30 C32 C33 (search for similar items in EconPapers)
Date: 2020
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Working Paper: The Macroeconomic Effects of Tax Reform: Evidence from the EU (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:90:y:2020:i:c:p:302-321

DOI: 10.1016/j.econmod.2020.03.007

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