Explaining Output Volatility: The Case of Taxation

40 Pages Posted: 17 Jun 2012

See all articles by Olaf Posch

Olaf Posch

Universität Hamburg, Department of Economics; CREATES

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2011

Abstract

This paper presents strong empirical evidence that the observed heterogeneity of output volatility across countries and over time is partly endogenous. In particular, based on a closed-form solution we obtain a (long-run) equilibrium relationship between taxes and output volatility in the stochastic neoclassical model by showing that asymptotically the variance of output growth rates is affected by the level of taxes, without affecting the mean. We estimate the tax semi-elasticities on output volatility and provide convincing empirical evidence that taxes are important to understand differences in output volatility among OECD countries.

Keywords: Macroeconomic volatliity, Tax effects, Continuous-time DSGE models

JEL Classification: E32, E62, H31

Suggested Citation

Posch, Olaf, Explaining Output Volatility: The Case of Taxation (May 1, 2011). Journal of Public Economics, Vol. 95, pp. 1589-1606, December 2011, Available at SSRN: https://ssrn.com/abstract=2085322

Olaf Posch (Contact Author)

Universität Hamburg, Department of Economics ( email )

Von-Melle-Park 5
Hamburg, 20146
Germany

CREATES

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

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