Spillovers from tax shocks to the Euro area

Sascha Mierzwa

Oxford Economic Papers, 2025, vol. 77, issue 1, 234-255

Abstract: I study the spillover effects of legislated discretionary tax changes in the USA, Germany, and the UK to a panel of eleven Eurozone countries for the period 1980Q1–2018Q4 employing Local Projections. When considering aggregated tax shocks, I find little evidence for significant spillovers. When allowing for state-dependent effects, I find no effects of German or US tax cuts regardless of the state of the business cycle. When allowing for asymmetric effects, there is, in general, evidence for negative (positive) spillovers from US, German, and UK tax hikes (UK tax cuts). US tax hikes always cause adverse spillovers, whereas the effects for Germany and the UK are state dependent. When considering country-specific effects, the effects turn out as heterogeneous across the Eurozone countries. UK tax cuts are generally expansionary, whereas US (German) tax cuts cause positive spillovers mainly during recessionary (non-recessionary) times.

Keywords: fiscal policy; tax policy; legislated tax changes; state dependence; Eurozone; fiscal spillovers; asymmetric effects; USA; Germany; UK; local projections; narrative approach (search for similar items in EconPapers)
JEL-codes: E62 E63 F45 H20 H30 K34 (search for similar items in EconPapers)
Date: 2025
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