The Output Effects of Tax Changes: Narrative Evidence from Spain

45 Pages Posted: 27 May 2017

See all articles by Paula Gil

Paula Gil

Universidad Complutense de Madrid (UCM)

Francisco Marti

Banco de España

Richard Morris

European Central Bank (ECB)

Javier J. Pérez

Banco de España - Research Department

Roberto Ramos

Banco de España

Date Written: May 26, 2017

Abstract

This paper estimates the GDP impact of legislated tax changes in Spain using a newly constructed narrative record for the period 1986-2015. Our baseline estimates suggest that a 1% of GDP increase in exogenous taxes depresses output by around 1.3% after one year, this negative effect fading away at more distant horizons. We also find that the effect of changes in indirect taxes are larger and that, following a tax increase, investment reacts more than consumption. Overall, our set of estimates is consistent with negative output effects triggered by tax increases, yet the quantitative effects are subject to non-negligible uncertainty that is reflected in wide confidence bands, in line with the extant literature for other countries.

Keywords: tax shocks, narrative record, fiscal policy, GDP growth

JEL Classification: E32, E62, H20

Suggested Citation

Gil, Paula and Marti, Francisco and Morris, Richard and Perez, Javier J. and Ramos, Roberto, The Output Effects of Tax Changes: Narrative Evidence from Spain (May 26, 2017). Banco de Espana Working Paper No. 1721. Available at SSRN: https://ssrn.com/abstract=2975198 or http://dx.doi.org/10.2139/ssrn.2975198

Paula Gil

Universidad Complutense de Madrid (UCM)

Carretera de Humera s/n
Madrid, Madrid 28223
Spain

Francisco Marti (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Richard Morris

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Javier J. Perez

Banco de España - Research Department ( email )

Alcala 50
28014 Madrid
Spain

HOME PAGE: http://www.bde.es/investigador/staff/95.htm

Roberto Ramos

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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