How is Tax Policy Conducted Over the Business Cycle?

53 Pages Posted: 14 Jan 2012 Last revised: 17 Jan 2012

See all articles by Carlos A. Vegh

Carlos A. Vegh

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS); University of Maryland - Department of Economics; University of California at Los Angeles; National Bureau of Economic Research (NBER)

Guillermo Vuletin

Brookings Institution

Date Written: January 2012

Abstract

It is well known by now that government spending has typically been procyclical in developing economies but acyclical or countercyclical in industrial countries. Little, if any, is known, however, about the cyclical behavior of tax rates (as opposed to tax revenues, which are endogenous to the business cycle and hence cannot shed light on the cyclicality of tax policy). We build a novel dataset on tax rates for 62 countries for the period 1960-2013 that comprises corporate income, personal income, and value-added tax rates. We find that, by and large, tax policy is acyclical in industrial countries but mostly procyclical in developing countries. Further, tax policy in countries with better institutions and/or more integrated with world capital markets tends to be less procyclical/more countercyclical.

Suggested Citation

Vegh, Carlos A. and Vuletin, Guillermo, How is Tax Policy Conducted Over the Business Cycle? (January 2012). NBER Working Paper No. w17753, Available at SSRN: https://ssrn.com/abstract=1985086

Carlos A. Vegh (Contact Author)

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS) ( email )

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University of Maryland - Department of Economics ( email )

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University of California at Los Angeles ( email )

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HOME PAGE: http://vegh.sscnet.ucla.edu

National Bureau of Economic Research (NBER)

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Guillermo Vuletin

Brookings Institution ( email )

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