Cyclicality of statutory tax rates

Michel Strawczynski

MPRA Paper from University Library of Munich, Germany

Abstract: Most studies on cyclical fiscal policy ignore statutory taxes due to a lack of data. In this paper I build on singular data on statutory tax rates in Israel, in order to study how they are changed by the government in expansions and recessions. After differentiating between ideological (exogenous) tax changes, to those that react to the cycle (endogenous) using Romer and Romer (2010) technique, I check whether endogenous statutory tax rates are a-cyclical or counter-cyclical, as recommended by theoretical models. I found that while direct taxes are a-cyclical, indirect taxes (and in particular VAT) are changed procyclically. A pseudo-panel analysis based on the different types of taxation and a panel analysis based on indirect taxation, show that the main reason for statutory tax changes is the existence of economic crises; this explanation is stronger than economic considerations like population or expenditure growth, legal considerations like the rigidity for changing statutory taxes, and income distribution considerations like the incidence on the bottom income decile.

Keywords: Cyclicality; Statutory Taxes; Crisis (search for similar items in EconPapers)
JEL-codes: H20 H30 (search for similar items in EconPapers)
Date: 2013-08-02
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published in Falk Institute Working Paper 13.03 (2013): pp. 1-36

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Related works:
Journal Article: CYCLICALITY OF STATUTORY TAX RATES (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:48821

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