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Explaining Output Volatility: The Case of Taxation

Olaf Posch ()

No 2751, CESifo Working Paper Series from CESifo

Abstract: This paper presents empirical evidence against the popular perception that macro volatility is exogenous. We obtain tax effects on macro aggregates in the stochastic neoclassical model. Taxes are shown to affect the second moment of output growth rates without affecting the first moment. Exploiting heterogeneity patterns in a panel of OECD countries, we estimate tax effects on macro volatility, explicitly modeling the unobserved variance process. We find a strong empirical link between taxes and output volatility. Accounting for non-stationarity of taxes and output volatility, we find empirical evidence of a cointegrating relationship.

Keywords: macroeconomic volatility; tax effects; continuous-time DSGE models (search for similar items in EconPapers)
JEL-codes: E39 E62 (search for similar items in EconPapers)
Date: 2009
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Related works:
Journal Article: Explaining output volatility: The case of taxation (2011) Downloads
Working Paper: Explaining output volatility: The case of taxation (2008) Downloads
Working Paper: Explaining Output Volatility: the Case of Taxation (2006) Downloads
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