The effect of legislated tax changes on the trade balance: Empirical evidence for the United States, Germany, and the United Kingdom

Bernd Hayo and Sascha Mierzwa

Journal of Macroeconomics, 2023, vol. 78, issue C

Abstract: This study uses a narrative account of quarterly discretionary changes in tax liabilities from 1974Q4 to 2018Q2 in a VAR setting to examine whether legislative tax changes affect the trade balance in the US, Germany, and the UK. Six different types of legislative tax changes are considered, including indirect tax changes, personal income tax changes, and business tax changes. The results show that, in general, reductions in aggregated tax liabilities tend to reduce exports in the US and the UK, whereas imports tend to increase, leading to a fall in the net-exports-to-GDP ratio. However, this pattern does not necessarily hold for disaggregated tax changes. Moreover, the results for Germany differ from those for the US and the UK. Overall, the economic magnitude of the estimated effects of tax changes on trade variables is relatively small.

Keywords: Fiscal policy; Tax policy; Legislated tax changes; Trade balance; Exports; Imports; Germany; United States; United Kingdom; VAR; Narrative approach (search for similar items in EconPapers)
JEL-codes: E62 F41 H30 K34 (search for similar items in EconPapers)
Date: 2023
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Working Paper: The Effect of Legislated Tax Changes on the Trade Balance: Empirical Evidence for the United States, Germany, and the United Kingdom (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:78:y:2023:i:c:s0164070423000642

DOI: 10.1016/j.jmacro.2023.103564

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