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The Macroeconomic Effects of Tax Reform: Evidence from the EU

Wouter van der Wielen ()

No 2019-04, JRC Working Papers on Taxation & Structural Reforms from Joint Research Centre (Seville site)

Abstract: This paper examines the macroeconomic effects of tax changes in the EU between 2000 and 2016. The novelty of our approach hinges on the use of real-time estimates of discretionary fiscal adjustments, covering personal income taxes, social insurance contributions, corporate income taxes and value added taxes. In particular, exploiting a unique database covering anticipated and unanticipated tax reforms in the EU, we provide the first narrative estimates of output and employment multipliers for tax reforms in the EU. Our results suggest that medium-term revenue-based output multipliers are in the range of -1.8 for unanticipated and -2.3 for anticipated reforms. Preannounced reforms, moreover, portray larger labour supply responses (by 0.7 percentage points) and temporarily impact economic activity inversely upon announcement. Finally, we find evidence of asymmetry between the effects of revenue increasing and decreasing measures in the EU. On average, revenue-based consolidations resulted in a 1.2 percentage point larger medium-term output multiplier in absolute terms.

Keywords: fiscal multipliers; narrative approach; discretionary tax reform (search for similar items in EconPapers)
Date: 2019-06
New Economics Papers: this item is included in nep-eec, nep-mac and nep-pub
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Journal Article: The macroeconomic effects of tax changes: Evidence using real-time data for the European Union (2020) Downloads
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