Empirical Evidence on the Aggregate Effects of Anticipated and Unanticipated U.S. Tax Policy Shocks

Morten Ravn and Karel Mertens

No 7370, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We provide empirical evidence on the dynamic effects of tax liability changes in the United States. We distinguish between surprise and anticipated tax changes using a timing-convention. We document that pre-announced but not yet implemented tax cuts give rise to contractions in output, investment and hours worked while real wages increase. In contrast, there are no significant anticipation effects on aggregate consumption. Implemented tax cuts, regardless of their timing, have expansionary and persistent effects on output, consumption, investment, hours worked and real wages. Results are shown to be very robust. We argue that tax shocks are empirically important impulses to the U.S. business cycle and that anticipation effects have been important during several business cycle episodes.

Keywords: Anticipation effects; Business cycles; Fiscal policy; Tax liabilities (search for similar items in EconPapers)
JEL-codes: E20 E32 E62 H30 (search for similar items in EconPapers)
Date: 2009-07
New Economics Papers: this item is included in nep-cba and nep-mac
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Citations: View citations in EconPapers (46)

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Related works:
Journal Article: Empirical Evidence on the Aggregate Effects of Anticipated and Unanticipated US Tax Policy Shocks (2012)
Chapter: Empirical Evidence on the Aggregate Effects of Anticipated and Unanticipated US Tax Policy Shocks (2010)
Working Paper: Empirical Evidence on the Aggregate Effects of Anticipated and Unanticipated U.S. Tax Policy Shocks (2010)
Working Paper: Empirical evidence on the aggregate effects of anticipated and unanticipated US tax policy shocks (2009)
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