Understanding the Aggregate Effects of Anticipated and Unanticipated Tax Policy Shocks

Karel Mertens and Morten Ravn

Review of Economic Dynamics, 2011, vol. 14, issue 1, 27-54

Abstract: This paper evaluates the extent to which a DSGE model can account for the impact of tax policy shocks. We estimate the response of macroeconomic aggregates to anticipated and unanticipated tax shocks in the U.S. and find that unanticipated tax cuts have persistent expansionary effects on output, consumption, investment and hours worked. Anticipated tax cuts give rise to contractions in output, investment and hours worked prior to their implementation, while stimulating the economy when implemented. We show that a DSGE model can account quite successfully for these findings. The main features of the model are adjustment costs, consumption durables, variable capacity utilization and habit formation. (Copyright: Elsevier)

Keywords: Fiscal policy; Tax shocks; Anticipation effects; Structural estimation (search for similar items in EconPapers)
JEL-codes: E20 E32 E62 H30 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (202)

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Working Paper: Understanding the Aggregate Effects of Anticipated and Unanticipated Tax Policy Shocks (2009)
Working Paper: Understanding the Aggregate Effects of Anticipated and Unanticipated Tax Policy shocks (2009)
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DOI: 10.1016/j.red.2010.07.004

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