The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States

50 Pages Posted: 16 Sep 2011

See all articles by Karel Mertens

Karel Mertens

Federal Reserve Banks - Federal Reserve Bank of Dallas

Morten O. Ravn

University College London

Date Written: September 2011

Abstract

This paper estimates the dynamic effects of changes in taxes in the United States. We distinguish between the effects of changes in personal and corporate income taxes using a new narrative account of federal tax liability changes in these two tax components. We develop an estimator in which narratively identified tax changes are used as proxies for structural tax shocks and apply it to quarterly post WWII US data. We find that short run output effects of tax shocks are large and that it is important to distinguish between different types of taxes when considering their impact on the labor market and the major expenditure components.

Keywords: fiscal policy, measurement error, narrative identification, tax changes

JEL Classification: E20, E32, E62, H30

Suggested Citation

Mertens, Karel and Ravn, Morten O., The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States (September 2011). CEPR Discussion Paper No. DP8554, Available at SSRN: https://ssrn.com/abstract=1928437

Karel Mertens (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Morten O. Ravn

University College London ( email )

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