EconPapers    
Economics at your fingertips  
 

Policy Implications of Non-Linear Effects of Tax Changes on Output

Samara Gunter, Daniel Riera-Crichton (), Carlos Vegh () and Guillermo Vuletin ()

No 28646, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In an earlier paper, titled "Non-linear effects of tax changes on output: The role of the initial level of taxation," we estimated tax multipliers using (i) a novel dataset on value-added taxes for 51 countries (21 industrial and 30 developing) for the period 1970-2014, and (ii) the so-called narrative approach developed by Romer and Romer (2010) to properly identify exogenous tax changes. The main finding is that, in line with existing theoretical distortionary and disincentive-based arguments, the effect of tax changes on output is highly non-linear. The tax multiplier is essentially zero under relatively low/moderate initial tax rate levels and more negative as the initial tax rate and the size of the change in the tax rate increase. This companion paper first shows that these findings have important policy implications, given that the initial level of taxes varies greatly across countries and thus so will the potential output effect of changing tax rates. The paper then turns to some specific policy applications. It focuses on the relevance of the arguments for revenue mobilization in countries with low levels of provision of public goods and social and infrastructure gaps, as well as in commodity-dependent countries. The paper then considers some practical implications for the standard debt sustainability analysis. Lastly, it evaluates the implications of the findings for the Laffer curve.

JEL-codes: E32 E62 H20 (search for similar items in EconPapers)
Date: 2021-04
New Economics Papers: this item is included in nep-mac, nep-pbe and nep-pub
Note: IFM
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.nber.org/papers/w28646.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
Working Paper: Policy Implications of Non-linear Effects of Tax Changes on Output (2019) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:28646

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w28646
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2022-01-13
Handle: RePEc:nbr:nberwo:28646